The franchisor/franchisee relationship can be challenging to navigate, but the 2015 National Labor Relations Board (NLRB) decision to shift labor liability to franchisors has made it even more complicated—and costly. Research shows that since the joint-employer ruling franchise businesses lose on average of $142,000 per year each because of legal fees and other expenses, and the number of lawsuits has nearly doubled. That adds up to $33.3 billion industry-wide. Nearly 336,000 jobs have also been lost as a result, and franchisor/franchisee relationships have become more distant to mitigate risk of lawsuits.
Basically, what franchises feared—and warned about—has come to pass. The lawsuits and mounting legal fees aren’t the only problems. As franchises increasingly disengage with franchisors to protect themselves, the local franchise stores—and customers—suffer. The resources these small business owners once enjoyed from corporate partners have decreased, and that’s support that often directly translates to success or failure.
The research also shows that the $33.3 billion expenditure isn’t being spent to comply with the rule, but rather to shield franchisors from potential lawsuits—which also means it’s a massive outlay of cash that also isn’t helping to grow companies.
Making matters worse, there is significant disagreement on how to even interpret and apply the NLRB decision. The Washington DC District Court of Appeals upheld the decision in December, but also noted that the ruling needed to be clarified, raising alarms across the industry. If the court is confused, how about small businesses?
The International Franchise Association and other organizations continue to lobby for change in the ruling and in franchisor/franchisee labor liability. Other groups such as the National Restaurant Association’s Restaurant Law Center are adding their voices to the discussion in hopes that clear rules and guidance will be outlined, and that a beneficial relationship can be maintained in joint employer situations.
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