Franchise industry worries about unions

Franchising is riding a wave of solid growth, but executives who met in Phoenix earlier this week worry that new regulations could make it easier for franchise employees to unionize.

Franchises are growing on average about one percentage point faster than the overall economy, with jobs following suit, said Matthew Haller, president and CEO of the International Franchise Association, which hosted the event.

Franchises operate in various industries, from fast-food restaurants to health care, childhood education, pet sitting, fitness, lodging, automotive repairs and more.

More than 3,800 people who run these companies, along with suppliers and others, attended the five-day conference at the Phoenix Convention Center.

Nationally, the industry expects to add 221,000 jobs this year, with total direct employment rising to 8.9 million and accounting for 3% of U.S. economic output. Arizona is one of 10 mostly Sunbelt states where franchising is expanding the fastest.

Franchisors are the companies that organize businesses and sell licenses to others, allowing them to operate local units. Those licenses cover trademarks and systems including names, logos, slogans and operating procedures.

New rule could boost unions

One of the key issues facing the industry is a “joint employer” rule finalized last year by the National Labor Relations Board and set to take effect Feb. 26.

It defines situations where two entities both could be considered employers of the same workers. For instance: cooks or servers employed by a restaurant franchisee and, possibly, by the parent franchisor that created the business model.

Under the new rule, franchisors could be considered a joint employer if they help to oversee or control wages or benefits, work schedules, job duties, hiring or firing, the setting of workplace safety standards or other aspects of running a business.

A franchisor could be named as a joint employer if it has the right to control these various functions, even if it doesn’t actively exercise that right.

The franchise industry instead argues that employers should be defined as those individuals exercising direct control over their workers.

Haller said he believes the new rule is motivated, in part, to boost union memberships after decades of decline. “(Union proponents) see franchising as a growth strategy,” he said in an interview.

The new rule is facing court challenges and efforts in Congress to overturn it, but President Joe Biden has vowed to veto such efforts.

Shedding light on local entrepreneurs

The success of franchising has raised its visibility, but the industry still has work to do, Haller said. One need is for the better promotion of successful local franchisees, as the public tends to value and trust small business owners. Franchises “often aren’t recognized as having local ownership,” he said.

Successful franchisees — the people willing and able to start new business units under an established brand — include a lot of mid-career executives who

“aren’t yet ready to retire,” along with veterans, Haller said.

“The reason veterans do well is that in the military, as with franchising, there’s a system and structure you follow,” he said.

Franchising also often appeals to people who don’t attend college, and the industry is trying to expand minority ownership, he added.

Prior full-time work experience is an important prerequisite, and successful franchisees tend to have personal savings that can be invested in a business, though loans and grants also are available.