Financing

McDonald's CEO warns that regulations could end franchising

Saying that, “our business model is under attack,” Chris Kempczinski urged franchises to push back against efforts at the state and federal level to regulate franchises and fast-food businesses.
Chris Kempczinski IFA
Chris Kempczinski told attendees at the IFA Convention that "our business model is under attack." / Photo by Jonathan Maze.

Declaring that, “our business model is under attack,” McDonald’s CEO Chris Kempczinski on Monday urged a group of franchise businesses to push back against regulatory efforts at the state and federal levels, which he argued would change the definition of a franchise.

Kempczinski, speaking at the International Franchise Association annual convention in Las Vegas, said that if franchising were a country it would have an economy larger than that of nations like Norway or Austria. And he highlighted the opportunities franchising provides for entrepreneurs looking to generate wealth. He said many of these opportunities are with people in underrepresented groups.

“If franchising were to go away, so would the opportunities for wealth generation for thousands of underrepresented Americans,” Kempczinski said. “While none of us want to imagine a future without franchises, the reality is our business model is under attack.”

Kempczinski’s speech was the first a McDonald’s CEO has ever given at the IFA’s annual event and represent a relatively rare appearance for a chief executive from the world’s largest restaurant chain at a major trade group event.

Yet it comes as the company has grown more public in its pushback against state and federal regulators and political proposals that have targeted either franchises, fast food or both. Kempczinski himself has made speeches targeting crime in Chicago, while Joe Erlinger, president of McDonald’s USA, has made multiple pronouncements warning of the potential impact of California’s Fast Act, which would create a council overseeing wages and regulations at large fast-food chains in the state.

But Monday was the first true, forceful pushback against proposed “joint employer” regulations by a McDonald’s chief executive. While the company has vigorously opposed a decade-long effort by the NLRB to toughen that standard—which was targeted at the Chicago-based burger giant—for the most part its defense has come in legal documents or through groups like the IFA.

Kempczinski, however, made clear his views on that proposal, which has seen new life in the Biden administration. Regulators have been pushing to make franchisors liable for the employment practices of their franchisees, or joint employers of the licensees' staffs. Kempczinski said the NLRB’s effort to codify that definition would “come at our expense.” He also suggested that the definition would turn franchises from “independent small business owners to employees of the parent company.”

“They would become the middle management of franchisors,” Kempczinski said. “It would destroy the independence and entrepreneurship that’s provided opportunities for so many.”

But he also suggested that efforts are mounting at the state level to increase the regulatory burden on restaurants and franchises. Joint employer legislation has been introduced in both California and New York. 

Kempczinski tied many of these efforts to labor advocates and union group that have been pressuring McDonald’s for years. Labor advocates have targeted McDonald’s with pressure to raise wage rates and improve working conditions, while also allowing for union votes. But that unionization effort failed to take hold at McDonald’s or other traditional fast-food chains outside of Starbucks.

Labor groups that in the past tried to unionize individual restaurants have found sympathetic state legislatures in the past two years that would effectively unionize restaurants “by fiat,” Kempczinski said.

He cited the bill introduced in California that would make franchisors joint employers of their franchisees’ staffs. He also cited the Fast Act and suggested that other states are considering similar proposals.

“If you’re not paying attention to pieces of legislation because they don’t impact you, I’m here to tell you to think again,” Kempczinski said. He cited the Fast Act, which currently focuses just on fast food.

“If you changed just one word in the Fast Act, it would affect anyone in franchising in any industry,” he said.

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