Franchisees Testify NLRB Actions Could Shut Them Down

Two franchise business owners urged Congress to address regulatory overreach by the National Labor Relations Board (NLRB) to expand the definition of what constitutes a joint employer during a hearing February 5 before the Senate Health, Education, Labor and Pensions (HELP) committee. The franchise business owners testified that recent actions by the NLRB would significantly undermine their ability to operate and sustain their businesses - potentially forcing them to close down.


At issue is the recent NLRB recommendation to upend the decades-long, well-established joint employer definition. Should the NLRB expand the definition of joint employer to include a franchisee's national brand, it would destroy the franchise model - leading to industry consolidation and, ultimately, to store closures and a loss of jobs, economic activity and entrepreneurial investment.

"I operate as an independent stand-alone business. I have the autonomy to run my business as I see fit, but if the Labor Board radically changes employer standard, I fear that my days as a business owner will be numbered," said John Sims, owner and operator of Rainbow Station at the Boulders in Richmond, Va. "The success or failure of my business is, essentially, all on me - and that is what I love about it. It would be a real shame to take these types of opportunities away from people like me."

Sims employs 40 at his Rainbow Station location and he and his wife were considering opening another location, but due to ongoing regulatory uncertainty at all levels of government they have put those plans on hold.

Likewise, franchisee Gerald Moore, an Army veteran, and owner and operator of five The Little Gym franchises, is also putting his expansion plans on ice as he awaits the NLRB's decisions and is able to see the implications of the Board's rulings. Moore was drawn to franchising because it gave him the skills and necessary to build a business, one that he could operate with his family - and eventually pass on to his children and grandchildren, but now he wonders if that will even be possible.

"If the National Labor Relations Board expands the current joint employer definition, our family business would no longer be ours," said Moore. "A broader interpretation of joint employer will certainly dissuade upstart entrepreneurs in the future. Simply put, these owners will be less attractive business partners for franchisors and this will drastically reduce the opportunities for business ownership all across the country."

A recent survey of members of the International Franchise Association (IFA) illustrated the broad concern that local, independently-owned franchisees are experiencing: 97 percent of respondents said that an expanded joint employer standard would have a negative impact on their business, and 82 percent said the impact would be "significant."

The NLRB actions are truly unfortunate considering the tremendous economic benefit franchising brings to communities across the country and to the national economy as a whole. Today, America's 780,000 franchise establishments generate nearly 8.9 million direct jobs and $890 billion of economic output and the sector is expected to see continued growth.

A study released earlier this year by IHS Economics predicted that franchise businesses would add 247,000 new jobs in 2015, coming off the heels of 235,000 new jobs in 2014. This 2.9 percent growth rate would mark the fifth consecutive year that job growth in the franchise sector outpaced the non-franchise workforce.

However, the anticipated NLRB rulings on joint employer, if not remedied, would have a significant and impact on the franchise business sector.

"Year after year, franchising makes significant contributions to local communities and provides opportunities for individuals seeking a path towards business ownership," said Steve Caldeira, IFA president & CEO. "However, the recommendation by the NLRB's General Counsel, if it goes forward, will halt franchisee expansion and the jobs they create. Our economy simply cannot afford this ill-conceived and politically-motivated ruling."

In closing their testimony to the Senate HELP committee both Sims and Moore implored the panel to codify the existing definition of joint employer.

"I strongly urge this committee to consider the devastating impact on all small business owners if the NLRB invents a new definition of joint employer to the potential detriment of local businesses like mine. I ask you to take the necessary steps to ensure that the National Labor Relations Board cannot take away my livelihood now or in the future," Sims said.

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