May 18, 2015

Game-Changing Developments Threaten Franchise Business Model

The National Labor Relations Board (NLRB) and Service Employees International Union (SEIU) have been coordinating attacks on the franchise business model. These activities were a primary focus for all attendees at the May 2015 International Franchise Association (IFA) Legal Symposium.

Make no mistake — these attacks threaten franchising and the tremendous investments franchisors and franchisees have made in their businesses. The greatest challenges facing anxious franchisors include:

  • The “joint employer” issues raised by the NLRB, including the General Counsel’s proposed new standard to determine joint employer status
  • Discriminatory treatment of franchisees on proposed minimum wage increases
  • An increasing number of lawsuits with allegations that franchisors should be liable for the acts of franchisees

Franchising is at a critical crossroads. Early in 2015, our Faegre Baker Daniels franchise lawyers presented a webinar on these game-changing franchise developments and other related external forces. In the webinar follow-up, we prepared guides on five best practices for franchisors to consider amid these developments and on utilizing the franchise agreement and operations manual to balance the interests of the franchisor, franchisee and franchise system as a whole.

Every franchisor can benefit from taking steps to better address these issues, especially in light of the Advice Memorandum issued by the NLRB’s Office of the General Counsel on April 28, 2015, in the Freshii franchise matter. In that Memorandum, the General Counsel concluded that neither the franchisor nor the franchisor’s development agent were joint employers with the Freshii franchisee under the current or proposed standard. Importantly, many of the best practices and franchise agreement provisions we highlighted previously were important in the Freshii matter. Now is the time to understand the critical pressure points and take action.

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