Franchisors Not Alone in Joint Employer Fight

Seven States PassFranchise Protection Laws — Experts Say More to Come

Armed with the support of the International FranchiseAssociation, seven states have stepped out and are fighting back against a 2015National Labor Relations Board ruling that makes it easier for franchiseemployees to hold franchisors accountable for labor violations.

Wisconsin is the latest of seven closely-watched states to fileand pass legislation aimed to protect franchisors, declaring that employeerelations should be the responsibility of an individual franchisees, not thefranchisors themselves. Of the seven states—including Tennessee, Texas,Louisiana, Michigan, Indiana and Utah—all have legislation that resemblesWisconsin’s new statute in one way or another. 

These bills are in response to the NLRB’s decision to expandthe definition of “joint employer” which among other implications, givesfranchise employees the right to negotiate directly with the franchisor.Business groups and other organizations have fought the ruling sinceAugust  2015, when the ruling came down,but perhaps none have fought more loudly than the IFA, which has beenencouraging state and federal lawmakers to overturn the decision. 

Jeff Hanscom, director of state government relations at theIFA, even went as far to tell the Capital Times — a Madison, Wisconsinnewspaper — that the ruling somewhat undermines the role of a franchisee. 

“A franchisee is in business for him or herself. They hire thefolks, they fire the folks, they decide what the pay is, what the benefits are.People don’t decide to become franchisees to be store managers or generalmanagers along with their franchisors as joint employers. That’s not how themodel works, that’s not why people do it,” Hanscom told press. 

Many within the franchise industry believe the new legislationis a move by the states to protect small business owners and the integrity ofthe franchise model itself. Labor unions and allies say these types ofprovisions hurt workers. Ultimately, there is little agreement surrounding theNLRB’s joint employer ruling. 

In the most basic sense, the NLRB’s decision changed thestandard for determining the relationship between local franchisees andcorporate franchisors and the employees who work for that company. Essentially,the law says the franchisor and franchisee should be considered “joint employers”and that labor relations could become the responsibility of the franchisor. 

Those who have argued the ruling — including the seven stateswhich crafted defenses against it — say that corporate franchisors should notbe responsible for compensation, unemployment benefits, employee wages andhiring standards, and instead those decisions should remain in the hands oflocal franchisees. 

Labor unions on the other hand have been vocal about theirbelief that the laws—like the one in Wisconsin and other states—limit workers’ability to fight back if they are treated unfairly by the franchise companiesthey work for. 

Though these franchise protection laws have gained traction insome states, others are not so quick to jump on board. A similar bill was recentlypassed by lawmakers in Virginia, but Gov. Terry McAuliffe vetoed the bill whenit arrived to his desk.

In his explanation, McAuliffe said the bill would relievedominant franchisors of obligations and responsibilities an employer owes toits employees. And, as a result, those responsibilities would “fall to thedominated franchisees — usually small, Virginia-based businesses — to shoulderthe burdens more appropriately placed on the dominant franchisor.” 

It are those same thoughts that started the NLRB’s discussionsto change its 30-year-old “joint employer” standard in the first place.

The case that started it all involved Browning-Ferris, a wastemanagement firm out of Houston. The question was whether Browning-Ferris shouldbe responsible for the treatment of contracted employees, after it hired anagency to staff a recycling facility in California. The labor board determinedBrowning-Ferris should be considered a "joint employer" and as aresult, the company would be involved in collective bargaining negotiations andbe held liable for any labor violations committed against them.

Expectations were that the ruling would hurt businesses of allindustries, with restaurants seeing the biggest changes, but as more stateslook to implement franchise protection matters, there is uncertainty for thefuture of the joint employer laws.

Oklahoma’s legislature is already considering its own versionof a franchise protection bill, while states like North Carolina, andpotentially others in the near future, are just beginning to consider theoptions. According to Hanscom, the IFA is even working on its own federalversion, something that will take high priority in 2017 for the country’slargest franchise advocate organization. 

About the author

Harold L. Kestenbaum is an attorney specializing in franchiselaw, engaged exclusively in the practice of franchise distribution andlicensing law since 1977. He is the owner of HLK, P.C. (www.franchiseatty.com)and has served on numerous boards and committees over the past two decades.Kestenbaum represents franchisors on a regional, national and internationallevel from existing franchise systems to first-time franchisors. He is theauthor of So You Want to Franchise YourBusiness, the first book dedicated to franchise entrepreneurs.

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