Editor’s note: In late January, Restaurant Business ran an opinion piece from the National Employment Law Project on the first legal test of holding a franchisor responsible for the employment practices of franchisees. General Counsel Catherine Ruckelshaus aired the opinion that McDonald’s, the franchisor in question, should be regarded as a “joint employer” of franchisees’ staffs, a position in direct opposition to the assessment of restaurant-industry leaders. Here, one responds.
Dawn Sweeney is president and CEO of the National Restaurant Association.
NELP is wrong: The buck stops with franchisees
By Dawn Sweeney
A recent column by the National Employment Law Project suggests that McDonald’s should rightly be “on the hook” for local employment violations of its franchisees as suggested by the National Labor Relations Board. While organized labor would certainly love to paint a bigger target on the backs of corporate franchisors, they miss the point of what franchising really is and why NLRB’s joint-employer ruling will have a devastating effect on this long-standing, successful model for entrepreneurship, jobs and our economy.
Behind every small business is a story of vision and risk taking. All startups are a daunting endeavor. That’s why franchising was established – to help launch new businesses, leveraging resources from successful, nationally recognized companies to individual operations. It’s a model that has worked well for decades—franchisors grow and expand their brand reach while franchisees realize the dream of starting their own business.
In the restaurant industry, 90 percent of America’s restaurants are either independent operators or franchisees. Overall, franchisees are responsible for the majority of restaurant-industry job growth.
Months ago, NLRB overturned the 30-year-old joint employer rule that gave franchisees the freedom to run their day-to-day employment practices independently of their franchisor —hiring, shift schedules, terminations. A traditional firewall has now been eliminated, making franchisors liable for franchisees’ employment practices despite the fact that franchisors have no control over those practices.
NLRB’s disruption of the joint-employer standard is a response to efforts by organized labor to build additional ways to unionize restaurant workers. Labor would much rather take a bigger swipe at organizing a large corporation than pick off small businesses with a handful of employees one at a time. By tying franchisees more to the hip of their parent company, labor can redefine a “small business” as “big business” and go after parent companies in their organizing efforts. Furthermore, as written, the recent NLRB decision negatively impacts other industries, including everything from contracted janitorial to landscaping services.
The ripple effect of this will reach far and wide. Franchisors that are now accountable for any and all infractions at the franchise level will completely realign their model and offerings to aspiring restaurant owners. Costs and red tape will go up substantially for franchisees and the dream of being “independent” will be diminished by the prospect of being stuck more under the thumb of a corporate office.
With increased challenges to franchise startups there will be fewer jobs created, less capital invested into the economy, fewer taxes paid and less upstream and downstream economic activity.
This couldn’t come at a worse time for American enterprise. Last month, disturbing news came from Gallup, which reports “the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.”
As the nation’s second largest private sector employer, the restaurant industry relies on the vision and risk-taking of our startups and franchisees, and so does America. The White House, Congress and Washington regulators should seek ways to foster their growth and success instead of stacking the deck against them, particularly at this time in our economic recovery.
If NELP is truly concerned about ensuring positive working conditions for employees, then it should help preserve the successful business model that has created millions of jobs and keep the buck where it belongs—with the independent, small businesses that created them in the first place.
If you’d like to add your opinion to the conversation, contact Peter Romeo, email@example.com.