By Matthew Patinkin, Auntie Anne’s Pretzels and Cinnabon

I would not have chosen to become a franchisee 27 years ago if the definition of Joint Employer was as it is being imagined today.

Few issues are more vexing to franchisees than the concept of becoming a Joint Employer under the umbrella of our franchisors. Likewise, franchisors are equally alarmed to be deemed Joint Employers of their franchisees. On this issue, franchisees and franchisors are lockstep in opposition to this rule.

The consequences of Joint Employer as envisioned by the new administration, and embodied in legislation like the PRO Act and the ABC Test in California’s AB-5, are not only detrimental to the franchise business model as a whole, but from a franchisee perspective it puts at risk the very ownership and control we craved when we first became franchisees.

A Franchisee’s Perspective

Franchisees are local entrepreneurs who own their businesses. They are the quintessential small business owner-operators — the economic drivers of the economy. The franchise business model differs in one critical way from a traditional start-up — franchisee owners “partner” with their franchisors to benefit from their experience and brand name recognition. This collaborative model reduces the risk of starting a new business, and greatly improves the chances for long-term, sustainable success. Decades of experience with thousands of brands, hundreds of thousands of franchise locations and millions of employees has proven this to be true.

Like all new business owners, franchisees control their operation, and most important, the people they hire and work with — their greatest asset. If a franchisor is deemed to be a Joint Employer with its franchisees, the franchisor will be held liable for all activities of the franchisee under the “employee relations” umbrella, and will certainly limit what decisions a franchisee can make with its employees. The franchisee loses control, which is precisely why they became franchisees in the first place.

A Parade of Horribles

Beyond this obvious conclusion, the following is just a partial list of specific consequences and concerns relating to the new definition of Joint Employer:

• All employment related issues will have to be reconsidered, including recruitment practices, hiring and promotions, wages and benefits, staffing levels and scheduling, disciplinary action, terminations, etc. I would not have chosen to become a franchisee 27 years ago if the definition of Joint Employer was as it is being imagined today.

• Franchisors would be compelled to establish specific parameters for all of the above, creating an entirely new series of procedures and paperwork which franchisees must follow.

• Franchisors will want to control all disciplinary actions, and certainly be involved in all firing decisions.

• Franchisors will probably impose their corporate HR policies on all franchisees, eliminating the discretion franchisees currently have. Least of which, this removes the “local” policies that franchisees use which work best in the geographic region where the franchise is located.

• Given the liability risk, franchisors would invariably need to hire field staff to monitor practices by their franchisees, meaning dozens, or hundreds, of franchisor employees would be in the pockets of the franchisees on a routine basis to ensure they are adhering to the franchisor’s policies.

• Existing agreements between franchisors and franchisees will have to be redone to absorb the additional costs incurred by the franchisor. Franchisees will see significant changes at the time of renewal or transfer events, and inevitably this means royalties and fees will go up.

• If the new definition of Joint Employer becomes permanent, there is the slippery slope of vicarious liability — meaning not just employment issues, but potentially criminal incidents, safety issues, slips and falls and other perceived liabilities.

• Franchisors aren’t set up to manage operations to this level, and may simply decide to open corporate units. The potential liability may not be worth the risk.

• Similarly, if franchisees no longer have control of their employment decisions, if their expenses go up, and if they have too much heads-down time handling all the new processes and procedures, they may simply not want to invest their money in this business model. Franchisees are entrepreneurs, and if they can’t control the operations, the risk won’t be worth the reward.

• Perhaps most important, Joint Employer status raises the question of who actually “owns” the store. If that’s true, the equity franchisees have built up over the years may be in jeopardy, another reason franchisees may say, “I’ll invest my money elsewhere.”

• Related to the above, once Joint Employer becomes law, government agencies will have much bigger targets with respect to compliance issues. This, in turn, may also spawn private lawsuits by attorneys looking to tag along with government action and settlements.

• And underlying all this is the union. It’s too difficult for unions to organize individual franchisee units, but if Joint Employer becomes a reality, unions will have a much easier time organizing a national or regional brand. Union membership is dwindling, and franchise systems present a very juicy target to increase membership and dues.

Conclusion

I’m proud of being a franchisee owner-operator for so many reasons, but none more than the people and relationships we’ve built, and the difference it’s made in so many lives.

Being a franchisee has allowed me and my partners to build a business that’s created hundreds of jobs, and for many people it’s the first job they ever had. Franchising is literally the nation’s largest vocational training industry. The simplest things like showing up to work on time, collaborating with co-workers, customer service and communication skills, and so much more — let alone earning a paycheck, receiving benefits and getting recognition and rewards for their contributions. I’m proud that so many of our employees have been with us for years — decades — and taken on more responsibility, taught and trained others, and have seen those people excel. These are real life responsibilities and skills they will have forever.

All of these items are under our control because our franchisor is not our “employer,” but now the rules are changing. If Joint Employer becomes the rule of the land, and my franchisor assumes liability over all the things that have helped me to be successful, then I’ve lost control of my business. The cloud of Joint Employer brings into question who actually owns the store? What it does to the equity I have built up, and will there even be a buyer out there? After all, why would some other aspiring business owner want to buy a business that he or she can’t control?

What Can You Do?

Simple… get involved. The IFA is doing extraordinary work to educate our legislators and convince them to protect our business model. They have made it so easy to advocate by sending letters to our legislators, having virtual meetings either locally or in Washington, DC, writing op-eds and doing interviews. This is real. It will have a major impact on us. It will not go away. My advice is, “don’t become complacent.” Get involved. Protect our industry. Protect yourselves.

 

Matthew Patinkin is a multi-unit franchisee of Auntie Anne’s Pretzels and Cinnabon, with locations in ten states. He has been a franchisee for 27 years.

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