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The National Labor Relations Board’s decision that McDonald’s MCD -0.76% can be counted as a joint employer with its franchisees in labor complaints has ignited a firestorm.
The ruling could cast a shadow across a wide variety of industries and companies that rely on franchise models.
“It would have a widespread, seismic impact on all segments of the franchise industry,” said Stephen Caldeira, president and CEO of International Franchise Association, in an interview. “Franchisees are independently owned. They have the responsibility to hire and fire. They process their own payrolls, pay their own taxes and have their own employer taxpayer ID. If the decision sticks, small business owners will lose control of their business and the equity they work so hard for. It’ll have a chilling effect on job creation.”
The IFA represents 1,320 franchiser members — including such non-restaurant businesses as 7-11, 1-800 Flowers FLWS , RadioShack RSH -4.79% , and Jiffy Lube, as well as 14,000 individual franchisee members.
The association is expecting franchisees to increase 1.7% in 2014 to 770,069 establishments, based on research carried out by IHS Global Insight. That will mark a third straight year of growth, after three years of declines. It expects franchisees to employ 8.55 million people by year-end, with the gross domestic product of the franchise sector expected to grow 4.6% to $494 billion, or 3.1% of U.S. GDP, unadjusted for inflation.
“This decision to allow unfair labor practice complaints to allege that McDonald’s is a joint employer with its franchisees is wrong,” said Heather Smedstad, McDonald USA’s senior vice president of human resources. “This decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the United States. McDonald’s, as well as every other company involved in franchising, relies on these existing rules to run successful businesses as part of a system that every day creates significant employment, entrepreneurial and economic opportunities across the country.”
The NLRB didn’t respond to a MarketWatch request seeking comment. Nor did some publicly traded companies that have franchise businesses. These include RadioShack, 1-800 Flowers and Starbucks SBUX +0.00% .
While the Starbucks namesake brand has franchisees only on a limited basis and is not accepting new applications, its Seattle’s Best Coffee unit still offers franchising.
Other trade groups also weighed in:
The National Retail Federation described the NLRB’s decision as “outrageous.”
“It is just further evidence that the NLRB has lost all credibility as a government agency established to protect workers and is now just a government agency that serves as an adjunct for organized labor, which has fought for this decision for a number of years as a means to more easily unionize entire companies and industries,” said NRF’s senior vice president of government relations, David French.
The National Restaurant Association said the decision will have “dire consequences” to franchisees, franchise employees, and the economy as a whole.
“By making franchisors liable for their franchisees’ employment practices and redefining individually owned franchises as ‘big business,’ NLRB would disrupt the franchisor/franchisee relationship and impede entrepreneurship and restaurants’ ability to continue to create jobs, particularly in an increasingly challenging economic environment. The net effect is counterproductive,” said Angelo Amador, VP of Labor and Workforce Policy.
NLRB ruling on McDonald?s franchisees ignites firestorm - Behind the Storefront - MarketWatch
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