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Seven States Pass Franchise Protection Laws — Experts Say More to Come
Armed with the support of the International Franchise Association, seven states have stepped out and are fighting back against a 2015 National Labor Relations Board ruling that makes it easier for franchise employees to hold franchisors accountable for labor violations.
Wisconsin is the latest of seven closely-watched states to file and pass legislation aimed to protect franchisors, declaring that employee relations should be the responsibility of an individual franchisees, not the franchisors themselves. Of the seven states—including Tennessee, Texas, Louisiana, Michigan, Indiana and Utah—all have legislation that resembles Wisconsin’s new statute in one way or another.
These bills are in response to the NLRB’s decision to expand the definition of “joint employer” which among other implications, gives franchise employees the right to negotiate directly with the franchisor. Business groups and other organizations have fought the ruling since August 2015, when the ruling came down, but perhaps none have fought more loudly than the IFA, which has been encouraging state and federal lawmakers to overturn the decision.
Jeff Hanscom, director of state government relations at the IFA, even went as far to tell the Capital Times — a Madison, Wisconsin newspaper — that the ruling somewhat undermines the role of a franchisee.
“A franchisee is in business for him or herself. They hire the folks, 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 general managers along with their franchisors as joint employers. That’s not how the model works, that’s not why people do it,” Hanscom told press.
Many within the franchise industry believe the new legislation is a move by the states to protect small business owners and the integrity of the franchise model itself. Labor unions and allies say these types of provisions hurt workers. Ultimately, there is little agreement surrounding the NLRB’s joint employer ruling.
In the most basic sense, the NLRB’s decision changed the standard for determining the relationship between local franchisees and corporate 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 states which crafted defenses against it — say that corporate franchisors should not be responsible for compensation, unemployment benefits, employee wages and hiring standards, and instead those decisions should remain in the hands of local franchisees.
Labor unions on the other hand have been vocal about their belief 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 companies they work for.
Though these franchise protection laws have gained traction in some states, others are not so quick to jump on board. A similar bill was recently passed by lawmakers in Virginia, but Gov. Terry McAuliffe vetoed the bill when it arrived to his desk.
In his explanation, McAuliffe said the bill would relieve dominant franchisors of obligations and responsibilities an employer owes to its employees. And, as a result, those responsibilities would “fall to the dominated franchisees — usually small, Virginia-based businesses — to shoulder the burdens more appropriately placed on the dominant franchisor.”
It are those same thoughts that started the NLRB’s discussions to change its 30-year-old “joint employer” standard in the first place.
The case that started it all involved Browning-Ferris, a waste management firm out of Houston. The question was whether Browning-Ferris should be responsible for the treatment of contracted employees, after it hired an agency to staff a recycling facility in California. The labor board determined Browning-Ferris should be considered a "joint employer" and as a result, the company would be involved in collective bargaining negotiations and be held liable for any labor violations committed against them.
Expectations were that the ruling would hurt businesses of all industries, with restaurants seeing the biggest changes, but as more states look to implement franchise protection matters, there is uncertainty for the future of the joint employer laws.
Oklahoma’s legislature is already considering its own version of a franchise protection bill, while states like North Carolina, and potentially others in the near future, are just beginning to consider the options. According to Hanscom, the IFA is even working on its own federal version, something that will take high priority in 2017 for the country’s largest franchise advocate organization.
About the author
Harold L. Kestenbaum is an attorney specializing in franchise law, engaged exclusively in the practice of franchise distribution and licensing 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 international level from existing franchise systems to first-time franchisors. He is the author of So You Want to Franchise Your Business, the first book dedicated to franchise entrepreneurs.