President Obama Takes An Ax to The Golden Arches

For the last 50 years, the Franchise business model has proven to be a powerful, practical and profitable partnership between entrepreneurs and parent companies.  Franchisees independently make all the daily business decisions - hiring, firing, wages, hours, compliance with government employment regulations etc. They invest money into their local business;  they take all the risks and they reap the profits.  Franchisors, having established a profitable brand with a widely recognized logo, charge a licensing fee and ongoing royalties.  The success of this business model is well established in every country in which it operates.

In the United States, for example, there are 750,000 franchise outlets employing about 8 million people.  Now, that model is under threat.  Last month the National Labour Relations Board, (N.L.R.B.)  appointed by President  Barack Obama, directed that fast - food giant McDonald's be named as "joint - employer"  in dozens of unfair labour practice complaints made by workers employed at the company's Franchises.  (90% of McDonald's restaurants).  If this ruling holds and sets a precedent, the entire Franchise business industry model could be completely gutted.

Here are the consequences.  Franchisors would be responsible for reviewing thousands of job applications at the local level.  They would have to be consulted on wages, benefits, rest breaks, overtime and hundreds of other working conditions now handled by local Franchisees.  The added costs of joint management would inevitably be passed on to the Franchisees who in turn would have to increase prices to consumers.  The end result?  Layoffs, closures, fewer new investments, falling bank loans, economic downturn.  Great.  Just what we need during this period of slow economic recovery.

So how did it come to this?  For the last 30 years, the National Labour Relations Board has operated under a legal precedent set by a 1984 decision;  TLI, Inc and Laerco Transportation.  The N.L.R.B. ruled:  "To establish joint employer status there must be a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction".  Clearly the Franchise model does NOT establish joint employer status.  So what prompted the N.L.R.B. to change its position now?  The answer is union power.  The Service Employees International Union (SEIU), with a long history of organizing workers in the service industries has lobbied the N.L.R.B. for years to make companies "joint employers"  with Franchisees.  Last year, the SEIU submitted a brief to the N.L.R.B. specifically arguing that fast - food Franchisors should be deemed joint - employers.  Bingo!  Success!  The Lobby union wins!  (They also funded Barack Obama's election campaign).  Of course, McDonald's will challenge this decision both at an N.L.R.B. hearing and if necessary, the courts.  But it should never have come to this in the first place.  The case for the current Franchise model was succinctly put by Andrew Puzder, Chief Executive Officer of CKE Restaurants:

"Franchisers and their franchises are not joint employers, and the NLRB is defying reality by pretending otherwise.  Many budding entrepreneurs got their start as franchisees, and millions of young Americans have gained their first work experience in franchise restaurants.  The Obama administration does not have a stellar record for encouraging business growth or economic vitality.  Killing a business model that has been such an American success would be one of the administration's most misguided moves."

My advice to President Obama:  Tell your appointees in the N.L.R.B. to stop this madness!  Remember what grandma said:  "If it ain't broke, don't fix it".