Franchises fear “devastating” change to their business model

If the National Labor Relations Board (NLRB) succeeds in its aim of holding franchisors legally liable for labor law violations by franchisees, it’s likely to upend the terms on which small and fledgling operators gain access to marketplace opportunities through franchising [Lydia DePillis, Washington Post]

11 Comments

  • And it’ll be one of those things where suddenly everything is centralised and corporate and monoculture, and it’s harder than ever for people of low wealth but high industry to find an opportunity to advance, and nobody’s going to seem to know how it got that way but everyone agrees it’s really bad…and that it must somehow be a big corporation’s fault.

  • No. This is not a problem. If a franchiser directs is franchisees on how to manage their employees, and the franchisees have no leeway, then the franchiser is a joint employer. Pure and simple.

    The more control the franchiser has, the more it is liable. If the franchiser gives complete control of the employees to the franchisee, there should be no problem.

    Of course, there will be a middle ground. But there is always a middle ground. We could simply have rules that all franchisers are joint employers of their franchisees’ employees. That would simplify things, but would likely kill the franchise model.

    the franchisers who oppose this want to control the employees without the employees having recourse, such as forming a large union.

  • Allan, if Franchisors interviewed employees, hired and fired, set their working schedules, pay rates, and benefits, I might agree with you. My experience, however, is that Franchisors establish standards of appearance and quality so that customer’s experiences are uniform across the brand (You will prepare a hamburger patty provided by one of the following approved suppliers, using the following equipment, by cooking for this period of time, then apply condiments in the following amounts, while wearing one of the following shirts, black pants or slacks, and shoes with a steel toe and tread suitable for work in a greasy kitchen). They do not say “hire Joe, not Suzy”, or “give John a raise” or “demote Brian to line cook” except at their peril. Those acts are the responsibility of the Franchisee.

    Remove the franchisee from that responsibility (likely because the Franchisor has deeper pockets), and you make the Franchisor responsible for acts over which they have no legal control.

    You may disagree in theory, and I may be citing an example which bolsters my case more than others, but if you look to any state’s laws at the statutes governing car dealerships, you will find that a manufacturer is massively curtailed in what control it can exert over a dealership and its employees. It is patently unfair to then hold the manufacturer responsible for that dealer’s independent acts (never mind the frequency with which this is already the case).

    Don’t make it worse in your quest for a worker’s utopia. The “Other People’s Money” will soon run out.

    • Carlitguy,

      I think that there are two extremes, one where we would both agree that the franchisor is controlling the employee’s working conditions and one where we would both agree that the franchisor is not controlling the employee’s working conditions.

      I guess the question is where we draw the line. Eventually, we would have to get to a point in the middle where we say on one side the franchiser is the employer, on the other side the franchiser is not the employer.

      I am concerned about the employee and the franchisee. The employee should be able to negotiate with the employer. If the franchiser is the employer, so be it. If it is the franchisee, I am happy with that.

      In the McDonalds case, i believe the issue is whether employees have an opportunity to negotiate over conditions of employment with the franchisee. If they do not, then McDonalds is effectively a co-employer with the franchisee.

  • If you are talking about the 10 employees who brought suit against the Franchisee and McDonalds in the western district of Virginia, my understanding is that the ten were already employees, had negotiated the conditions of their employment with the original franchisee, and brought suit when the new franchisee felt it was “too dark” in the restaurant and “need(ed) to get the ghetto out of the store”. Those allegations were attributed to the franchisee, not to any employee of McDonalds corp. . There are also allegations of groping females in the store and other incidences of similar harassment. They also claim to have been treated differently in discipline than similarly situated white employees.

    Still, accepting the allegations as true – that the employees were trained how to make burgers following McDonald’s processes, used its equipment, and that their schedules were generated using McDonald’s software – the lawsuit indicates that McDonald’s corporate wasn’t even notified of the (disgusting if true) actions of the new franchisee until after the employees were terminated. I’ve not sen McDonald’s response to the claim that McDonalds corporate did nothing when notified of the claims, and reserve judgement on that issue.

    Much is made of McD’s manuals and software as if it controlled the franchisee, and McD’s ability to unilaterally change the terms of the agreement with the franchisee, but none of it dictates that the employees here (of differing experience, job classifications, hours worked, and rates of pay) be treated as they were. If anything, it appears McDs was unaware of the actions of Snead, Lambert, and Simon.

    You can’t have it both ways – either McDs was in control, and subjected the employees to those conditions, and should be treated as their employer, or McDs was unaware of the reprehensible activities of the franchisee and his management staff (accepting the allegations as true) IN SPITE OF McD’s efforts to periodically monitor the store and communicate thru training, manuals, etc that such behavior was unacceptable – in which case, McDs should not be treated as the employer.

    It appears that your preference would be McDs as employer, in which case they needed to do more to prevent the actions of Snead, Lambert, and Simon, which begs the question of why Simon (and franchisees in general) are in any way beneficial to companies like McDs? It appears they are nothing but a source of liability…

  • Sorry, broken link. Poor typing on my part. My apologies to Mr. Olson.

  • Allan, just where do we find that extreme where the franchisor is controlling what would be a local control- independent decisions made by the franchisee? It seems that CarLitGuy has already explained this to you.

    Very few stores in the franchise model are held by the corporation.

    Question, CarLitGuy: you’re not Ed Faxon, are you?

    • Heck if I know. It may be that, were I to look at every franchisor I might conclude that there is no joint employment relationship.

      My problem is that the franchisors seem to be arguing that there can NEVER be a joint employer arrangment if there is a franchise agreement. I think that argument is specious. As far as I can tell, no-one, on the other hand, is arguing that there is ALWAYS a joint employer arrangement if there is a franchise agreement.

      Does McDonalds’s franchise agreement work in such a way that there is a joint employer? I don’t know. However, it is possible.

      • Speaking only for myself, Allan, I failed to see anything in the complaint that should subject McDs to the disruption and expense of extensive discovery and depositions into their franchise agreements with no recourse but to grin and bear it. Had plaintiffs alleged that one on McDs regional reps said such things, groped the employees, or directed the franchisee to replace employees with other ethnic groupings, I’d be right with you.

        Instead, it appears to be an attempt to bring in McDs solely for the depth of their pockets and for the influence they might exert over the franchisee in encouraging settlement.

        My experience with such cases (admittedly, usually in the case of auto dealers in warranty and sales claim suits) is that the franchisee does not “step up”, no matter how guilty they may be, relying on the deeper pocket to pay off the plaintiff for business reasons.

        That, I contend, is Moral Hazard writ large – the actual guilty party bears no (or marginal) consequence for their actions, and the settlement of the claim before judgement is a high bar to overcome in the franchisor’s efforts to remove the franchisee who is causing them reputational damage to the brand. Noting that the act of removing a franchisee is itself typically the subject of lengthy and expensive litigation.

        From past comments, I suspect the status quo is just the policy you would pick, since it virtually ensures the plaintiffs will get a full payment for their injuries, but I believe (again, based on my experiences) that the marginal cost to society as a whole of dragging in deep pocketed peripheral defendants (who aren’t even claimed to have committed the assaults alleged) exceeds that of any benefit to individual plaintiffs by a large margin.

        and with that, I step down from my rickety milk crate.

  • No Bill, I’m a guy with a lot of experience in auto warranty law, who used to work for one of the large manufacturers before I retired, but I’m not Ed.

    Disclaimer: My opinions are purely my own, and should in no way be imputed to my former employers.

  • No Bill, I’m a guy with a lot of experience in auto warranty law, who used to work for one of the large manufacturers before I retired, but I’m not Ed.

    Ah- OK. You’re one of………them. 🙂
    Like I make sure to note- I am a car electrician, not a lawyer. And I most certainly impute nothing of your opinion to anyone you may have worked for. Just your screen name made me think of him.

    As for our friend Allan:

    Heck if I know. It may be that, were I to look at every franchisor I might conclude that there is no joint employment relationship.

    My problem is that the franchisors seem to be arguing that there can NEVER be a joint employer arrangment if there is a franchise agreement. I think that argument is specious. As far as I can tell, no-one, on the other hand, is arguing that there is ALWAYS a joint employer arrangement if there is a franchise agreement.

    Does McDonalds’s franchise agreement work in such a way that there is a joint employer? I don’t know. However, it is possible.

    OK. You’ve gone from certainty that the franchisor being liable to likely not liable.

    Your argument falls on your premise that there should be an employer arrangement. That just cannot work in the usual franchise model. When you buy a franchise, you are buying rights to a name. It’s almost like buying software- when you register that agreement, you buy the right to use that software in a manner agreed to by you and the licensor. If you don’t like those terms, you don’t need to buy that software. But, you have the now monumental task of creating something for your needs. It’s the same thing with franchising. You don’t want to pay the $100K (might be a lot more- I know it is not cheap) for a MickeyD’s franchise? You ain’t gotta spend it. But you ain’t getting the recognition or the assist from corporate, either.

    When you buy a franchise, you are still liable as the employer. You set the hours. You set the pay scale. You determine who works for you and who does not. You make the decisions on who is and is not promoted. McDonald’s is large enough that they have management tools and professional help available to you, but it’s still your business. McDonald’s merely lets you use the name. Why do you think franchising is such a popular way to get into one of the toughest, most competitive businesses there is?

    There’s only one McDonald’s that I am aware of as being corporate owned- and that’s the original one in Downey, California. You can bet the rent corporate keeps a very close tab on how that one is staffed and operated.