NLRB draws union attention to franchise industry

The National Labor Commission has proposed a dramatic overhaul of the franchise business model by reclassifying restaurant and hotel chain employees as employees of the parent company.

Opponents warn that the change would devastate an industry that employs 8.2 million people and contributes about 7% of all US economic output.

“This hurts a lot of people, from people trying to leave the corporate environment to become independent business owners, to people trying to start their careers with entry-level jobs, to consumers having to pay $15 for a hamburger. ” said Frank Capellino, who teaches franchise management at San Diego State University and owns multiple franchises.

Proponents say the plan will allow workers to stop being mistreated. Parent companies have more power to change workplace policies and concessions than franchisees.

NLRB Chairman Lauren McFerran said in a statement: “In an economy where employment relationships are becoming increasingly complex, the Board believes that the statutory rules for determining which employers should participate in collective bargaining are set by the National Labor Relations Act. should serve the goals of

Under this proposal, the Democratic-led board would reclassify franchise workers as employees of parent companies such as McDonald’s, Marriott International, and Taco Bell. employees, designated as independent business owners to obtain franchise licenses.

The reclassification of franchise workers would give parent companies and franchisees joint and several liability for labor law violations. Also, the parent company will have to negotiate with the local franchise employees who decide to form a union.

The parent company, known as the franchisor, argues that joint liability is unfair because it does not directly control the workers in the franchise. level is managed.

The NLRB’s request for public comment ended in December. About 2,200 individuals and businesses debated, perhaps earlier this year, with nearly identical comments criticizing the proposal before he returned to the NLRB for final approval.

The International Franchise Association, which lobbies for franchisors and franchisees, said the proposal would “wreak havoc on franchise business models, millions of employees and consumers.”

Franchisees say the rule makes them mere employees of the parent company rather than independent entrepreneurs.

They warn that the plan will force franchisees to raise prices to cover expected increases in legal costs. Together with the new resources to negotiate bills, it will cost an estimated $4.9 million per hour.

In its failed labor discrimination lawsuit against McDonald’s, the American Civil Liberties Union argued that the franchise model shielded it from accountability for labor issues in local franchises over which large corporations exercised some control.

In a statement after the lawsuit, the ACLU said, “Decisions like this have led the business entities pulling the strings to continue to say ‘no,’ leaving workers exposed to labor law violations stemming from organizational gaps and flawed workplace policies.” can ignore the suffering of Fired last year.

Franchisees and their owners say the proposed rule will halt a major source of revenue.The US’s approximately 775,000 franchises are expected to pump $720.4 to $826.6 billion into the US economy. According to FRANdata, which tracks the franchise industry, 2017 sales are his $1 billion.

“There are hundreds of billions of franchisees in stock and ownership across the country, and if the NLRB says law-abiding franchise owners do not operate legally independent businesses, they have billions of franchises. of shares in fiat currency,” said senior vice president Michael Layman. The president of government relations at the International Franchise Association told The Washington Times.

Elected officials in Washington threw themselves into battle. The Republican Caucus recently sent a letter urging the NLRB to reconsider the proposed rule because it will “harm” millions of workers.

In response, a coalition of Democratic lawmakers sent a letter arguing that the rule is necessary to prevent large companies from hiding in the shadows of small business owners and circumventing their legal obligations.

The rules governing whether a parent company is a co-employer have changed over the years, depending on the NLRB’s political system. The NLRB is an independent body, but its Board members are elected by the President.

In 2015, when the board of directors was controlled by President Obama’s appointees, the rules changed so that the parent company was considered a co-employer if it controlled certain working conditions, such as dismissing or disciplining employees. it was done.

According to the International Franchise Association, the change cost franchise businesses $33.3 billion annually, lost 376,000 franchise jobs and caused a 93% increase in labor lawsuits.

Under President Trump, the board has reversed the change. At the time, a Republican-led board reinstated the franchisee’s standards of control. A parent company can only be a co-employer if it has “substantial” control over the terms and conditions of employment.