NLRB Creates Uncertainty for the Franchise Industry

By Adam Robinson,
December 30, 2014

Depending on which way the National Labor Relations Board (NLRB) decision goes, the 18 million people whom are employed in the franchise sector will be impacted in some way. The NLRB ruling could change the franchises operations across the country.

On July 29, 2014, the NLRB general counsel announced that individual McDonald’s franchisees and McDonald’s franchisor, McDonald’s, USA, LLC, would be named as a joint employer. In other words, the franchisor, McDonald’s corporate would be responsible for all joint labor and wage violations that are committed by franchisees. Just to refresh your memory, the ruling was created after the NLRB general counsel began receiving complaints from McDonald’s fast-food workers stating that McDonald’s and its franchisees were violating the rights of employees.

Franchisor and Franchisee Concerns

While the NLRB ruling only applies for McDonald’s for now, many franchisors and franchisees have concerns about how the ruling could create huge changes to their business operations.

‘We fear the floodgates have opened because of the general counsel’s opinion. And given the lack of transparency on the rationale behind the decision, it is creating a huge amount of uncertainty in the franchising community,’ said Steve Caldeira, president of the International Franchise Association (IFA).  ‘This needs to stop.’  

If passed, the ruling could make it harder for individuals to become small-business owners.

‘What that means is the cost of one lawsuit against one franchise may be spread across the other franchises or the franchisor,’ said Stephen Bienko, owner of two Boston-area franchises of College Hunks Hauling Junk and College Hunks Moving. ‘In order to protect themselves, the franchisor is going to have to increase their costs to franchisees. They’re looking at it as one entity.’

Matt Kelton, COO of Showhomes, stated that increased legal costs or exposure to litigation could be something giant corporations like McDonald’s could handle, but the joint employer and vicarious liability risks may seriously threaten smaller franchisors. Kelton noted that the joint employer ruling would
 go against the way franchising is supposed to empower individual small business owners.

‘We make a point to our franchisees that they’re the CEO of their own company and that we’re not micromanaging them,’ said Kelton. ‘If I have to get involved in every franchisee’s hiring and human resources, at some point I might as well just have corporate locations, for all the effort involved. Franchising might not be perfect, but the system certainly isn’t broken.’

What Now?

As of now, the NLRB is not providing further information regarding the ruling. All they have really shared is that grounds for joint employment required ‘a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction.’

Even though the ruling has not yet been decided, the uncertainty that the situation creates is impacting the effect on franchising. All we can do is sit back and wait to see what happens.

In the mean time, be prepared for whatever may happen and consider utilizing a hiring platform to help make your recruiting process as simple as possible. The Hireology platform can be used by either the franchisor or franchisee no matter what the outcome may be. Franchisors will be able to use the platform to create a consistent hiring process and reduce legal ramifications while the franchisee will be able to use the platform to hire the right people, increase profits and success. Visit https://hireology.com/ to learn more about how the platform can help both the franchisor and franchisee no matter what way the NLRB ruling goes.

About the Author

Adam co-founded Hireology with the mission to help growing companies make better hiring decisions through data and better technology. Adam is passionate about entrepreneurship, donating time to a number of organizations that support the entrepreneurial cause. Adam completed his undergraduate study at the University of Illinois at Urbana-Champaign, and received his MBA from DePaul University in Chicago, IL.