Issues & Insights

Franchises Need Freedom And Flexibility, Not Rigid Rules From Washington

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Walking into a Jiffy Lube or Little Caesars Pizza, it is easy to forget the role of franchisees in catering to consumers. In fact, every year, millions of jobs are created by small business owners given the chance to expand the franchise footprint of a larger corporation. These entrepreneurs often retain plenty of flexibility in hiring and management decisions, while relying on the capital and expertise flowing from the larger businesses’ headquarters. But the franchise model may soon be severely hamstrung by new, onerous regulations coming from Washington.

Currently being considered before Congress, the Protecting the Right to Organize (PRO) Act would expand the joint employer standard and increase businesses’ liability for workers they may not even have direct control over. The imposition of these strict standards would cost the economy countless well-paying job opportunities at an already difficult time. Lawmakers should reject the PRO Act and end federal meddling in employer-employee relationships. 

Passing the PRO Act would fundamentally change the dynamic not only between workers and employers, but also between franchisors and franchisees. As legal analyst Jarina Duffy explains, the bill “aims to amend the National Labor Relations Act, specifically regarding the joint employer issue, by adding that two or more people are considered the employers of a particular employee if each such person ‘codetermines or shares control over the employee’s essential terms and conditions of employment.’” In some cases, even indirect control could amount to “sharing control” for the purposes of the law.

In one fell swoop, sprawling businesses with tens of thousands of franchises would be forced to come to the bargaining table if a franchisee’s employee had a quibble with the terms and conditions of his/her employment. And this, of course, negates most of the practical advantages created by the franchise model.

Large businesses have been willing to hand over freedom and flexibility to local owners. In exchange for that freedom from corporate headquarters, the franchisees manage and resolve employment disputes within their own particular franchise location. If the law requires businesses to micromanage employment operations, franchisees will lose independence and become a cog in the wheel of corporate operations.

Somehow, though, some seem to believe that the change would actually be good for franchisees. During a recent Senate hearing on the PRO Act, Heidi Shierholz of the left-of-center Economic Policies Institute bizarrely argued, “what the joint employer standard does is actually help small businesses, it helps franchisees. They are already required to be at the bargaining table under the NLRA with the union.”

By that logic, requiring a representative from the larger company to also be present would lend the franchisee a helping hand. But Shierholz fails to consider the natural, long-term consequences of that requirement for the company itself to take part in employee deliberations.

An overly cumbersome process would deter the company from opening more franchises and result in keeping all operations central. And this would put a serious damper on job creation because franchise-related employment gains far outpace job gains in more centrally organized businesses. While large, established companies are naturally more risk-averse and maintain drawn-out hiring processes, small business owners often feel the need to expand quickly or wither on the vine. Clamping down on this entrepreneurial spirit would mean large job losses. According to an analysis by the American Action Forum, instituting a permanent, strict joint employer standard would lead to 1.7 million fewer jobs across the private sector.

Fortunately, lawmakers could avoid these large job losses by rejecting this misguided standard. The franchise model can continue to foster innovation and lead to large job gains, but only if the federal government takes a step back.

Ross Marchand is a senior fellow for the Taxpayers Protection Alliance.

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Issues & Insights is run by the seasoned journalists behind the legendary IBD Editorials page. Our goal is to bring our decades of combined journalism experience to help readers understand the top issues of the day. We’re doing this on a voluntary basis, because we believe the nation needs the kind of cogent, rational, data-driven, fact-based commentary that we can provide. 

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