The familiar Bob Dylan refrain could describe the world of franchising these days. There appears to be a drumbeat for change, with proposals in the legislature, in the federal agencies, and even in the courts to "fix" a broken franchise model. For example:
- In July, two new pieces of franchise legislation were introduced in Congress. The Fair Franchise Act of 2015 is intended to protect franchisees from predatory franchising practices after they purchase franchises, and the Small Business Administration Franchise Loan Transparency Act is designed to help buyers get more accurate financial information about a franchise before they invest.
- In May, the Services Employees International Union (SEIU) petitioned the Federal Trade Commission to launch an investigation of the franchise industry "to determine the existence and extent of abusive and predatory practices by franchisors toward franchisees."
- In April, the National Labor Relations Board's Office of General Cousnel issued an Advice Memorandum concluding that restaurant franchisor Freshii does not exert enough control over its franchisees to be considered a joint employer with them. This decision drew attention because the NLRB General Counsel continues to pursue complaints against franchisor McDonald's under a joint employer liability theory. In fact, earlier this year, 10 former employees sued franchisor McDonald's and its franchisee as joint employers. The franchisees allege they were discriminated against, harased, and fired because they are African American or Hispanic.
Is the franchise model broken? Does it need fixing? If so, what should the fix be? And, most important of all, how will all of this affect your business?