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Franchise Rule Could Destroy ‘700,000’ Small Businesses

At a Senate hearing Thursday, Republican Sen. Lamar Alexander condemned a recent labor board ruling arguing it could destroy the franchise model.

“This hearing this morning is about a pending National Labor Relations Board decision that could destroy a small business opportunity for more than 700,000 Americans,” the Tennessee senator said during the hearing. “Why would the pending decision by the National Labor Relations Board threaten this very American way of life, knocking the ladder out from under hundreds of thousands of Americans?”

Alexander is the chairman of the Health, Education, Labor and Pensions Committee (HELP), which invited franchise owners to testify on the impact the National Labor Relations Board (NLRB) ruling could have on their businesses. Last year, the NLRB issued a controversial decision that made franchisors joint-employers with the individual franchisees they contract out to. Opponents have argued that the decision has the potential to dramatically overturn decades of established laws– and greatly affect the franchise model.

“So what could this mean for these more than 700,000 franchisees and employers?” Alexander asked.

The franchise model is unique because it allows entrepreneurs who wouldn’t otherwise be able to open their own business to open their own business, all while still having the name recognition and support of a major corporation. The NLRB ruling changes that and makes the individual franchise owner just a part of the corporation, as opposed to a private partner.

Alexander also notes that the decision could have negative consequences for businesses outside the franchise model.

“This case doesn’t just affect franchisees, it will affect every business that uses a subcontractor or contracts out for any service,” he argued. “That includes most of the 5.7 million businesses under NLRB jurisdiction in America – because most businesses contract for some service.”

But committee Ranking Democrat Sen. Patty Murray disagreed, arguing that franchisors have too much control over the individual businesses they contract with.

“The parent company of a franchise can dictate pricing and store hours. It can prohibit collective bargaining and it can monitor, in real time, worker hours and staffing levels,” Sen.  Murray declared. “And yet, the parent company can put all the liability for poor working conditions and low wages squarely on the shoulders of its franchise owners.

“Without collective bargaining rights, workers have no recourse for improving these workplace conditions,” the Washington senator continued. “This arrangement can also hurt franchise owners. These small business owners face pressure in bidding for franchise licenses and they struggle to manage under corporate rules.  That’s not good for workers. It’s not good for franchise owners. And, it lets some major corporations have it both ways.”

“They can squeeze both workers and small business owners, while they make record profits. And they get to escape all liability for low wages and poor working conditions,” Murray added. “Too many big corporations are rigging the system and leaving taxpayers holding the bag. These employment arrangements, including temp agencies and franchises, are the new reality of today’s labor market. But they shouldn’t be the end of basic worker protections or earning a living wage.”

The NLRB has previously used similar justifications to defend their decision. In one release, they argued, “Through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations of our act.”

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