Fighting for the Franchise Industry

International Franchise Association
Written by Claire Suttles

Time and time again, franchising has proved to be a winning business model. “There is a reason that franchising has outpaced growth of the overall U.S. economy for the past five years,” says International Franchise Association (IFA) President & CEO Steve Caldeira. “It’s a time-tested and proven business model and if you follow the template correctly and you work very hard, then you are going to be successful, more often than not.”
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This tried and true business model also provides remarkable opportunities for veterans, minorities, women and folks from all walks of life – folks that may have even started as an entry-level employee. “We like to say that franchising is a way to be in business for yourself, but not by yourself,” Mr. Caldeira shares. “A lot of these franchisees were once hourly employees. They learn the system and create business ownership opportunities unlike other industries. It can’t get more American Dream than franchising.”

Franchisees share their success by creating new opportunities for job seekers. Currently, “franchising represents 8.9 million direct employees and nearly 18 million direct and indirect employees, which represents just over three percent of U.S. GDP, approximately 800,000 establishments and nearly $1 trillion in economic output.”

In a still fragile, uneven economy in which “17.4 million people are still unemployed, under employed, or have given up looking for work,” franchising delivers a promising path. “We are growing at a 2.9 percent clip; we are going to add 247,000 new jobs in 2015, coming off an impressive 235,000 new jobs in 2014. We are a critical spoke in the wheel for job creation, career opportunities and small business ownership,” says Mr. Caldeira.

Once again, franchise businesses are projected to grow at a faster rate than the rest of the economy in 2015; but this growth is threatened by “a multitude of public policy headwinds at all levels of government (federal, state and local),” Mr. Caldeira reports, and this is where the IFA steps in. “First and foremost, our job at the IFA is to protect, promote, and enhance the franchise industry. The first job of any trade association has to be to protect their industry from things that could negatively impact their bottom line and their ability to create businesses and much-needed jobs. That is why we are here in Washington, and increasingly in state capitals and municipalities around the country.”

As the world’s oldest and largest organization representing franchising around the globe, the IFA has been a reliable source of advocacy and education for 55 years. Members include franchise companies in over 300 different business format categories, individual franchisees, and companies that support the industry in the areas of marketing, law, technology, and business development.

The IFA is expanding with the industry to ensure that it can adequately represent members around the world. “As the industry has continued to grow, the threats have continued to grow along with it, therefore the staff of the IFA has continued to grow,” explains Mr. Caldeira. “Our political action committee has nearly doubled in five years. It is an industry on the rise and, as you grow, more challenges are thrown your way and you have to deal with them reactively, proactively, efficiently and of course, as effectively as you can. That is what we are doing each and every day at the IFA.”

One of the industry’s biggest threats is the National Labor Relations Board’s (NLRB) new recommendation that franchisors and franchisees can be designated as joint-employers. Giving franchisors responsibility and control over franchisees’ employees simply makes no sense, the IFA insists. “Franchisees independently own their businesses; they have the ability to hire, to fire, to set wages, to process their own payroll.” Franchisees have their own employer identification number with the Internal Revenue Service and the vast majority file their business income through their personal tax returns. “They are independent business men and business women who pay an initial franchise fee and ongoing royalty payments to be a part of the brand.”

The consequences of naming franchisors as joint-employers with franchisees could be dire. Mr. Caldeira calls the proposal a “radical” change that could put millions of jobs at risk. “This is a major public policy issue that could thwart small business job creation in the franchise industry,” he says. “If I were an aspiring entrepreneur, why would I want to put my life savings into franchising if there is a chance that I am not going to be able to actually run that business? And, how is McDonalds, for example, going to police 14,000 restaurants, 90 percent of which are owned by their owner-operators? This is blatant government overreach by a pro-union government agency.”

The IFA has sprung into action over the joint-employer issue. “That is a big threat to our industry, so we are looking for a legislative solution that would keep in place the current statutory definition of what a joint-employer is under the National Labor Relations Act. We are working in a bipartisan manner on Capitol Hill and we are also working at the state level to get precedent-setting legislation passed like we did in Tennessee that clarifies that franchisors are not joint-employers with their franchisees. We have been, and will continue to be, very actively politically on this issue.”

The IFA traces the new joint-employee definition to organized labor. “By proposing this seismic change, a supposedly independent federal agency is yielding to intense outside pressure from labor unions led by the Service Employees International Union (SEIU), which is seeking to unionize franchise chains and undermine the proven, time-tested franchise business model,” said Mr. Caldeira in an IFA statement. He also warned about allowing the NLRB to “substitute its will for the job of Congress.”

He points out that, “The unions, and particularly the Service Employees International Union [SEIU], is behind all of this because their membership coffers have been dwindling since 1945, when 35.6 percent of private sector employees were members of organized labor. Today it is down to 6.6 percent membership in private sector unions. So they have to find their bacon somewhere and they are coming after the franchise industry to do it. And we are going to continue to punch back hard and for all the right reasons.”

Mr. Caldeira says that the SEIU is also driving the fight for the $15.00 minimum wage, another hot button franchise issue. “It is all politically motivated,” he states. “There is no organic movement by fast food employees to walk out on restaurants and demand $15.00 an hour. It is all part of the effort of the SEIU to provide the air cover to unionize restaurants; that is what this is all about. That is what reporters are starting to write about, especially now that they see the money that has been spent by the unions to make this happen. You even have members of organized labor that are starting to questions the strategy behind all this. The labor community itself is saying, ‘how many restaurants have you unionized over the last two years [after spending] close to $50 million?”

The IFA is also concerned about the NLRB’s implementation of “ambush” election rules, which speed up the unionization process. “They shrunk the time down by two thirds,” Mr. Caldeira reports. “That really doesn’t give a lot of time for education and due process.” The new rule also requires employers to give the personal email addresses and phone numbers of their employees to union organizers. Again, this is one more example of blatant and politically-motivated government overreach by the pro-union NLRB.

Tax increases as part of the fiscal cliff deal, and the implementation of the Affordable Care Act are posing additional hurdles, and the IFA is working diligently to support the franchise industry in those areas as well.

Every regulatory issue that the IFA is fighting could have a “chilling and measurable affect on the industry,” Mr. Caldeira feels. But, with so many positives working in the industry’s favor, he remains cautiously optimistic. “Despite these public policy hurdles that we are facing, we continue to grow because the [franchise] model is so strong and both existing and aspiring entrepreneurs truly see the value in it.”

Indeed, visit any town or city in North America, and you will see countless successful franchises. “You can’t go up a main street in America without running into a [franchised] automotive car care center. You can’t walk down a street and not see a hotel that is franchised, or a restaurant that is franchised or a commercial service that is franchised.” The list goes far beyond the easily recognizable restaurant franchises, to include businesses that many people don’t associate with the business model, from Century 21 and H&R Block to The UPS Store.

IFA is committed to supporting these thousands of franchises that play a pivotal role in our economy. “There isn’t one segment of franchising that isn’t growing,” Mr. Caldeira reiterates. With 12,000 new establishments opening in 2015, the industry is pushing back against regulatory threats – and the IFA is very aggressively leading the way.

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