A New Look for Franchises?

In August of 2015, the National Labor Relations Board ruled in favor of Browning-Ferris Industries that a small business franchisee could be considered a “joint employer” with the franchisor company that lends its brand name and marketing to the small business. Traditionally, franchisors, by law, did not directly employ or control the franchisee’s workers and was exempt from joint liability for employment practices happening at a local franchise. This ruling may change the way that franchises operate, and could even be the beginning of the end for the traditional franchisee model.

mc donalds sign

Via The Hill

For starters, the Browning-Ferris Industries ruling has jeopardized the ability for franchisee’s to do their own hiring, scheduling, and setting of salaries for their employees. Because the franchisor now carries a greater risk level, it’s expected that franchisors will look to have more input at each franchise location to prevent employment practice liability issues. In 2014, the National Labor Relations Board ruled that mega-franchise McDonalds is a joint employer, due in part to their extensive computer systems that track labor usage and costs at each franchise location. McDonalds is currently fighting the ruling, and the case is to be heard in early 2016.

The BFI ruling also throws a curveball to franchisee and franchisors in the form of various insurance policies that will need to be added or updated within the policy. Employment practice liability coverage, as well as management liability coverage, is usually based on the number of employees an employer has. With the “joint-ownership” ruling, a franchise will need to include every employee at every franchise location, causing premiums to skyrocket.

While the big players in the franchise world like McDonalds, Subway, and Chipotle certainly won’t fold due to this new ruling, smaller franchises, especially those with 5 locations or less, may feel the ramifications of the NLRB’s decision much more. Learn more about how your franchise may be affected, and what you’ll need to do to ensure that business can continue to grow, get in touch with a Restaurant Programs of America agent. Our experienced agents can explain more in detail how your specific franchise may be affected, and what steps you’ll need to take as the owner to continue franchise growth while protecting the overall business and brand.