Franchising World July 2008

Franchise Appreciation Day provides an opportunity to come to Washington; and, in essence, “Franchise Congress.”

By Jason Straczewski

This fall, franchise-business owners will have the unique ability to play a key role in shaping public policy in Washington. In addition to the general election on Nov. 4, mark your calendars for the International Franchise Association’s Franchise Appreciation Day: IFA’s Public Affairs Conference Sept. 15-16 in Washington, DC. For two days, more than 500 franchise business leaders will gather on Capitol Hill to tell lawmakers the story of franchising and its impact on our economy. Armed with personal stories and real-world examples of how policies in Washington ultimately affect franchising, attendees will be ready with one more piece of important ammo: the IFA Educational Foundation’s study on the Economic Impact of Franchised Businesses. 

Released in March, and prepared by PricewaterhouseCoopers, Volume 2 of the study shows that from 2001-2005, franchise businesses have outpaced the economy as a whole in terms of the rate of growth of jobs, payroll and output.  In fact, the rate of growth in employment was three times higher for franchise businesses than for the economy as a whole.  During this annual grassroots event, participants will be able to share this information and bring its impact home for lawmakers, as franchised businesses operate in every state and congressional district in the country.
 
Whether you can make the trip to Washington in September or not, the fall-election season provides a unique opportunity to be active on the issues that matter most to your business.  Next month marks the traditional summer recess period for Congress. Normally, this is a time for lawmakers to get some much needed rest and relaxation and a refrain from the tedious, weekly, flights back and forth to Washington.  It is also a time for lawmakers to go away on a vacation with the family.  However, in a political year, many elected officials will be staying close to home and using this down time to do some valuable campaigning and reconnecting with constituents.  This presents a perfect opportunity for franchisors and franchisees to introduce themselves to their lawmakers and highlight key issues. 
 
As a preview for Franchise Appreciation Day, and to assist members in reaching out to their lawmakers this fall, highlighted here are some of the key issues IFA’s Government Relations staff believes might see action this fall or become a major part of the presidential campaigns and be a crucial part of the 2009 congressional agenda.

Card Check
The misleadingly titled “Employee Free Choice Act,” would take away a worker’s right to a federally-supervised private ballot when deciding whether to join a union.  Union membership has been on the decline for decades and Big Labor has made this its highest priority in Congress.

The bill would replace the private ballot with a scheme called “card check,” which allows a union to organize if a majority of workers simply sign a card.  Under this system, the union organizers themselves—not the federal government—oversee the process.  Each individual’s choice is made public to the employer, the union organizers and co-workers.
 
The legislation also contains an unprecedented requirement imposing contract terms on private, unionized employers through a process of compulsory, binding arbitration.  If an employer and a union are unable to reach agreement on a first contract within 90 days, it can be referred to the Federal Mediation and Conciliation Service for mediation.  After 30 days of mediation, the dispute will be referred to arbitration.  Results of the arbitration will then be binding for two years.
 
Card-check legislation was active in 2007, passing the U.S. House of Representatives and reaching the Senate floor, but action is not anticipated this fall.  However, with the prospect of a new president who has not committed to vetoing the legislation, as President Bush has, the focus is on 2009 and beyond when this is sure to remain at the top of Labor’s wish list.  Take a moment to learn more by logging on to www.myprivateballot.com. 

Immigration Reform
Immigration reform remains at the forefront of the IFA’s legislative priorities, and the association continues to serve as a steering committee member of the Essential Worker Immigration Coalition.  The coalition continues to work with House and Senate leadership, as well as the administration to fashion a comprehensive reform plan.  The core principles that we advocate include a plan that will: strengthen our border security; ensure only those legally in the United States get hired; create a dynamic “future flow” new worker visa program that provides for the legal and orderly admission of needed workers; and, establish a practical solution to the issue of 12 million undocumented immigrants currently living and working in the United States that includes the notion of citizenship for those willing to earn the status.  IFA also strongly urges that employer verification systems be practical and simple for smaller employers to utilize without burdensome administrative costs or hefty penalties.  

Since the collapse of the Senate version of the Comprehensive Immigration Reform Bill, S. 1639 in June 2007, other incremental immigration reform proposals have surfaced.  In particular, IFA and EWIC have strong concerns with H.R. 4088 and S. 2368, the Secure America through Verification and Enforcement Act or the “SAVE” Act.  This legislation, introduced by Reps. Heath Shuler (D-N.C.), Brian Bilbray (R-Calif.) and Sen. Mark Pryor (D-Ark.), does not provide the adequate framework to meet the economic and national security needs of the United States. 

While IFA supports enforcement and a fast, accurate and reliable employment verification system, these provisions do not exist within the context of comprehensive immigration reform in H.R. 4088/S. 2368.
 
The Department of Homeland Security in August 2007 issued a rule addressing an employer’s obligations in response to receipt of a Social Security number mismatch notice (i.e. a “no match” letter) from the Social Security Administration.   This new rule would dramatically affect millions of small employers and likely lead to the unnecessary firing of legal employees who could not resolve “no match” letters within a short period of time.  In September, the IFA and others from the employer community joined a lawsuit against DHS for failing to consider the affect of the new regulation on small businesses, as required by law.  Subsequently, a federal judge in the Northern District of California issued a preliminary injunction to suspend the new rule until the court could fully consider the issue.  This injunction is a modest victory for the IFA and the employer community, and it will gain employers valuable time to advocate for comprehensive immigration reform.
 
On March 24, in an attempt to lift the injunction, DHS issued a supplemental proposal that does not actually change the regulations issued last summer.  The supplement merely provides guidance on how “promptly” an employer should respond to a letter.  In addition, DHS poorly attempts to address its failure to complete an economic analysis on how the new rule would impact small businesses.  The IFA and the Essential Worker Immigration Coalition believe the department drastically underestimated the financial impact to small business. 

IFA and other members of the employer community are working to educate members of Congress about the inadequate maximum number of seasonal, temporary worker visas issued through the H-2B visa program.  Current law allows 66,000 foreign workers to come to the United States annually under the H-2B program, after the businesses go through a process that includes offering proof no American workers are available to handle the need. The workers stay for three-month periods to handle seasonal peaks in business.  For the past two years, Congress has passed temporary language allowing returning H-2B applicants not to count against the 66,000 cap.  There were about 123,000 H-2B workers in the United States last year, unfortunately, Congress adjourned before it could consider a similar expansion in 2007. 

Arbitration
Legislation introduced by Rep. Hank Johnson (D-Ga.) and Sen. Russ Feingold (D-Wis.) seeks to amend the Federal Arbitration Act to render as unenforceable all pre-dispute binding arbitration clauses in consumer, employment and franchise disputes.  This legislation is an unwarranted intrusion into the freedom of contract rights of private companies, and it unfairly voids specific and long-standing contract terms in existing agreements.  Most importantly, the bill will harm the ability of franchisors and franchisees to resolve their disputes effectively and economically.
  
The original purpose of the Federal Arbitration Act was to allow businesses “to settle their disputes expeditiously and economically.”   In principle, the swift resolution of disputes should benefit both parties by curbing litigation costs.  In practice, however, arbitration can be a legally-complex issue, and there are a variety of court decisions that govern its use.
 
As a result, franchise systems have a wide variety of approaches to arbitration in franchise agreements.  In recent years, many franchise systems have moved toward other forms of alternative dispute resolution, such as mediation; but there are likely tens of thousands of existing franchise agreements that contain some form of mandatory arbitration clause.  It would be an unnecessary infringement on the right to freedom of contract for Congress to rewrite the terms of these existing agreements between private parties.
 
Along with the IFA, others in the business community are working in conjunction with the Arbitration Coalition, which opposes all anti-arbitration legislation.  Most recently, IFA signed a joint letter with other coalition members to oppose numerous proposals introduced this Congress to change the Federal Arbitration Act. 

Health Care
Small-business health-plan legislation would allow small businesses, such as most franchisees, to band together to create national pools, through which to access health-care coverage that is more affordable than what is presently available on a state-by-state basis.  IFA believes SBHP legislation could be the solution to the small-business franchisee’s difficulty offering health-care benefits because it would allow franchisees in the same system to pool together across state lines, united by their system affiliation.  Unfortunately, given the present congressional leadership, SBHP legislation, or any legislation that would address small business health care, is not expected to move in 2008. 
 
Look for health-care reform proposals ranging from government-sponsored universal coverage to employer mandates to dominate the discussion in 2009. Now is the time for franchised small businesses to speak up and position themselves to be a part of the coming health-care reform debate after the elections. 

Menu Labeling
While mandates on what information should be disclosed to consumers in restaurants has been a hotly-debated issue at the state and local levels in recent years, Congress may be poised to act on the subject in the future.  The restaurant industry, including IFA, has begun pursuing legislation that will create a national standard for what information should be provided to consumers and in what manner. 
 
With 70 percent of Americans customizing their meals at restaurants, flexibility and education are keys to nutritional disclosure.  The federal effort is expected to allow this flexibility while shielding restaurants from liability when the disclosed nutritional content varies due to customization.

Business Activity Taxes
In June 2007, legislation was introduced by Sens. Charles Schumer (D-N.Y.) and Michael Crapo (R-Idaho) to assist franchise companies and other businesses throughout the country in limiting audits and tax bills from states where they do not have any buildings, property or staff.  On Feb. 7, similar legislation, HR 5267, was introduced in the U.S. House by Reps. Rick Boucher (D-Va.) and Bob Goodlatte (R-Va.).  The Business Activity Tax Simplification Act seeks to clarify the intent of existing interstate commerce law and re-establish the primacy of the Commerce Clause in multi-state business activity.  In the past, if a franchisor’s relationship to a state was limited to the trade name or brand name that links a franchisor to franchisees, that relationship was insufficient to justify the imposition of taxes on out-of-state franchisors.
 
However, in recent years states have interpreted this law differently and sought to collect taxes from out-of-state companies.  Some states have argued that the presence of intangible property in their jurisdiction may be subject to state income taxation.  For franchising, this expanded definition of “substantial nexus” has opened the door for states to impose new taxes on the royalty income paid to the franchisor by franchisees located in a different state.  BATSA codifies the “physical presence” standard and eliminates confusion for state tax administrators and businesses alike.  BATSA would also ensure that one standard of taxation applies for taxing multi-state companies, taking some of the confusion out of interstate commerce. 
 
On Feb.14, the House Small Business Committee held a hearing on this issue and included among its witnesses Firehouse Subs Chief Financial Officer Stephen Joost, testifying on behalf of IFA.  HR 5267 is now before the House Judiciary Committee and the coalition of supporters is urging swift action so that legislation can move forward and possibly be enacted this year.  IFA is a leading member of the Coalition to Protect Interstate Commerce, a business coalition seeking clarification of state nexus standards through legislative means.

Mandatory Paid Sick Leave
Under the proposed Healthy Families Act, employers with as few as 15 employees would be required to permit each worker to take up to seven days of leave with pay and benefits.  The bill would impose inflexible rules governing the manner in which the leave is administered and, in many cases, would permit employees to take the leave in increments as small as six minutes with little prior notice (such as a doctor’s note).
 
While well intentioned, the HFA would limit an employer’s ability to design compensation and benefits packages tailored to employees.  Additionally, the bill inevitably would increase unscheduled absences and chronic tardiness, burdening co-workers and harming productivity and competitiveness.

Take Action
It is clear there are many issues on lawmaker’s plates that could negatively affect the growth of franchised business in the United States.  Starting soon, there will be numerous opportunities for franchised business leaders to get involved and have a role in shaping public policy.  Franchise Appreciation Day provides an opportunity to come to Washington; and, in essence, “Franchise Congress.”  The IFA needs your help to bring home for lawmakers the true impact the policies outlined here have on small businesses and their workers. The IFA’s Government Relations staff is here to help support members with all the tools necessary to deliver the message on how franchising is leading the way in economic growth and opportunity. 
 
For more information on the issues affecting the franchise community and how IFA-member companies can get involved, visit the Government Relations section of IFA’s Web site, www.franchise.org.  

Jason Straczewski is director of government relations of the International Franchise Association.  He can be reached at 202-662-0797 or jstraczewski@franchise.org. IFA’s Director of Political Affairs Victoria Adams and Director of Government Relations Troy Flanagan contributed to this report. 

Not a Member? Join IFA
Forgot Login?