September 06, 2022

Says overly broad rule will take away opportunities for small business ownership; poses direct threat to the franchise business model

WASHINGTON, DC – The International Franchise Association (IFA) today released the following statement on the Notice of a Proposed Rulemaking (NPRM) by the National Labor Relations Board (NLRB) addressing the standard for determining joint-employer status:

“Franchise owners are independent operators, and the NLRB’s joint employment rule proposes to take away their independence,” said Michael Layman, Senior Vice President for Government Relations and Public Affairs. “Franchising has provided hundreds of thousands of people from all walks of life the opportunity to own their own business, and this proposal stands to take that away in favor special interests. This rule is yet another example of government officials stacking the deck against franchising, with small business owners and their employees paying the price.”

The franchise model is built on a contractual relationship between franchisor and franchisee. Franchisees make their own employment decisions. However, by proposing a standard based on liability for businesses that merely possess the authority to control employees, even if they have not done so, the NLRB is arming itself an unpredictable standard that may lead to finding businesses liable for workers they don’t employ and workplaces they don’t control.

Today’s Notice of Proposed Rule Making (NPRM) comes only two years after the NLRB finalized a commonsense standard for joint employment that clarified two employers may be joint employers if they mutually have direct control over employees. In 2019, IFA commissioned a study that showed the previously expanded joint employer standard cost franchise businesses $33.3 billion per year, resulting in 376,000 lost job opportunities, and led to a 93% increase in lawsuits.

Franchising provides hundreds of thousands of local business owners the opportunity to own their own business under a well-known brand name. In fact, nearly one-third of business owners say they would not own a business without franchising, especially true for women, people of color, veterans, and first-time business owners. According to research by Oxford Economics, franchised businesses provide better wages, up to 3.4% higher, and more generous benefits than their non-franchised counterparts. Around 26% of franchises are owned by people of color, compared with 17% of independent businesses generally.

Later this month, IFA plans to bring 300 advocates to Capitol Hill to ask lawmakers to consider the harm this expanded definition would bring to their business and those they serve.

The NPRM is expected to be published in the Federal Register on Sept. 7.

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