The Sky is Not Falling

12/09/2015
...at least not from Browning Ferris
The summer has passed. Governor Brown is about to sign into law AB525 revising the relationship laws in California, the NLRB has finally issued its decision in Browning Ferris, and Seattle and others have raised the minimum wage.

McDonald’s is being investigated by the NLRB in multiple cases, the SBA is reviewing whether or not to keep the Franchise Registry and how they will change their standards, Congressman Ellison has proposed a national franchise relationship bill, and SEIU and other unions are looking for ways to increase their membership by fragmenting franchising.
Despite all of that - The Sky is Not Falling.
We are in mid-stream of multiple forces and more are likely to emerge, all trying to leverage franchising for their own purposes - that much is clear. There is no doubt that franchising is under some stress. Developing a proper strategy, one that may by necessity include lobbying and litigation, will be necessary and expensive. The need to fund a proper Government Relations program doesn’t change. But to a greater or lesser degree this has always been the case, even before I became involved in franchising - after all, government relations was the single reason that the IFA was first established. Of late, each challenge seems to come with email blasts, newsletters, pundit papers, articles, and interviews expressing the notion that any or all of these actions, individually or collectively, will somehow destroy or harm franchising. That notion is not realistic or credible, and should stop. While others talk up their industries, of late, our leadoff seems always to be the challenges facing us and down the page we can learn about the good that is happening.
Most often when people tell us that whatever they are fighting against will destroy franchising they generally follow it by adding “as we know it” and I will admit, in some of my letters and testimony against different actions, I have likely used the phrase myself, from time to time. It is always preferable to have change come from the inside - rather than be thrust upon you -because it’s easier to accept change when it is self-generated. But, when we resist change, simply because the trigger is outside of ourselves, or may come from what we perceive as the opposition or competitor, we generally miss some unexpected opportunities.
Franchising was never intended to be a static business structure that did not evolve over time. Few transformational strategies and successful business models ever survive for long without change. Countless examples exist of defunct or diminished companies and industries that have tried to ignore disruptive technology that challenges their way of thinking or have bought into the notion that they could continue to prosper simply because they were the established leader despite the risks of incumbent inertia. By its very nature and throughout its long history franchising has continually adapted and changed based on the regulatory landscape, consumer needs, and most certainly because of the changing profile of franchisees and how that impacts franchise relations. Franchising has remained resilient for so long, because at its heart it is an entrepreneurial experience - and entrepreneurs, by their very nature, look at change as opportunity and are always looking for improvements.
If you look back on where we were 30 years ago, franchisors that had created franchisee advisory councils were perceived as risk takers, and there were programs and debates that addressed those concerns. Today having an FAC is fairly standard and it would be inconceivable that any but the small emerging franchisors not to have one. Working with a franchisee association, until not that long ago, was close to heresy - many franchisors would not even acknowledge they existed. However, now that we have examples of those that have done so constructively, perceptions are changing. We think of franchising as this immense part of the U.S. and global economy today, but I remember speaking at an IFA convention early in my career (we had a robust attendance of 400+- franchisors and suppliers that year - certainly no franchisees) where I presented on “How to Structure a Franchise System to Maximize its Attractiveness to Multi-Unit Franchisees.” I spent that evening with some of the greybeards in the association being lectured about how wrong I was because multi-unit franchising, if it ever caught on, would destroy franchising. It didn’t, given the direction of franchising today in recruiting multi-unit franchisees. Innovation and change is always risky and often difficult - that is, until it is shown to work.
We are spending time, money, human resources, political capital, and relationships dealing with a host of external issues. We have to and always will. To some extent today these are driven by two things: outside forces like SEIU that are the catalyst for the challenges; but also as we ourselves decide what type of resources we need to apply, based upon the reactions we think are required.
There are certainly things important enough to be battled to the mat, and discriminatory minimum wage and NLRB’s new joint-employer definition (if some of the predictions come to pass) are likely just two today. But when every challenge is categorized as a threat that will “destroy franchising as we know it,” there is a tendency to hunker down and keep the status quo in place at all cost. The cost of doing so in political capital, relationships, staffing, and the rest is extraordinary and, as we recently learned in California’s AB525, not the only way. The last time I felt we were in an identical place was during the Coble/LaFalce hearings and when some large franchisors formed the National Franchise Council to create an alternative to harsh regulatory action against non-compliant franchisors and promote industry self-regulation. We were fixated on nothing else and maybe in those situations we chose the right approach - I believe we did, as I was a participant at the time. But clearly, only having a negative response to each potential transformational change is illogical, and taking a different tack to some of the challenges we face today and tomorrow is in order.
I began contemplating this article as I became more and more frustrated at much, but not all, of the information flowing out of the Browning Ferris decision. Each missive seemed to build on the notion that the decision in Browning Ferris, while unclear and not directed at franchising, was clearly a threat. My frustration become more acute, however, during a well-presented webinar I attended on what the decision meant to franchising, where it was repeatedly recognized that Browning Ferris was not a franchising decision and that the presenters, based on the information at hand, did not know what if any risk it posed to franchisors and franchisees. Still, at least twice during the webinar they said it would “destroy franchising” and they did not even soften their sentiment by saying “as we know it.” There is without a doubt a risk that the NLRB, down the road, could have a transformational impact on franchising as we know it, but other than causing some in franchising to change how they manage their systems, no one expects franchising to be destroyed. Under its new definition, to be considered a joint employer a company no longer needs to have simply “direct and immediate” control over another business’ employees, but will be held to a standard that “indirect” or “reserved” control over labor practices will be sufficient. Certain common practices in franchising will be affected - the problem is that no guidance was given on which ones, and how much needs to be done to avoid "indirect" or "reserved" control.
If there is a problem with Browning Ferris, based on my observation to the reaction that followed the decision’s release, it is that it did not live up to its pre-release hype regarding its impact on franchising. This is especially true since the decision specifically stated that it was not addressing the relationship between franchisors and franchisees. The decision in Browning Ferris apparently supported the position taken by the NLRB’s General Counsel, Richard Griffin, that the necessary and legitimate brand controls effected by franchisors over their franchisees, even when those controls have an indirect impact on the franchisee’s employees, were not triggers for joint-employment in franchising. Coming on the heels of the NLRB’s decision in Freshii, the Browning Ferris decision is certainly more positive for franchising than we were led to expect and, if there are risks, we likely are not going to know what they are until after the NLRB completes its in-depth examination of McDonald’s, which seems to be focused on the robustness of McDonald’s information system. Whether they consider that to be sufficient as an indirect control over labor would not surprise me, however, given the make-up of the NLRB board. But based on what I know about McDonald’s, that would be a considerable stretch given the rights and obligations in the McDonald’s franchise agreement and the way its relationships with franchisees are managed. Frustration for franchisors and franchisees arises if the NLRB confuses franchisor support with franchisor control. A labor-scheduling tool for franchisees to use does not equate to franchisor control over the franchisees, it just enables franchisees to better manage labor costs and related decisions. It is exactly the kind of support franchisees want and expect. But those looking for a means to an end see that tool as evidence of control, not as a means of helping the franchisee succeed.
I am not Pollyanna in thinking that Browning Ferris is not important, or that the IFA identifying the risk was not the right approach for franchising. But, I am concerned like most business people that NLRB’s overly broad and extraordinary approach to redefining joint employment will have an impact on just about any downstream distribution and supplier relationship imaginable, including franchising. Few, if any, independent contractor vertical relationships will arguably survive scrutiny under this approach if the upstream party asserts or reserves any contractual control over presentation of its product to the ultimate consumer.
Consider, for example, that it is routine for large retailers like Walmart and Costco to have standards they want enforced by their suppliers related to who manufactures their merchandise, what their workplace conditions are, and even the sources of raw materials used. Recently for example, the U.S. government began to administratively require some contractors to have basic pay scale and workplace rules. President Obama announced a requirement for paid sick leave for federal contractors. Does that make the Federal government a joint employer? Under BFI, yes it could. Wouldn't that be an interesting case? Some of the standards large retailers require from their vendors are quite common and include areas such as child labor, safety, security, workplace conditions, supply chain and the like, which the government mandates or which a retailer’s brand reputation requires. Included in the tools companies use to enforce their supplier standards are observations, reports, and ultimately the right to terminate the relationship should the provider violate the agreed-upon standards. Will that scenario be enough for the NLRB to declare Walmart and Costco joint-employers with their suppliers? I don't know, and based on the opinion in Browning Ferris, I am not certain that the NLRB even knows.
Closer to home, it is common for franchisors in the restaurant industry to require managers and food handlers that work within their system to take, within a specified time period, the National Restaurant Association’s ServSafe training, along with the franchisor’s management training. Is that an indirect control element sufficient to cause joint employer status? It shouldn't be, but it’s not impossible to think that the NLRB could use that as a basis of its determination. Since the reason a franchisor would require this is to prevent food-borne illnesses and not to control franchisee employees, a likely and necessary prophylactic would be to state the reasoning in the agreement or manuals to avoid inferences of control.
The lesson is that once you go down the path of believing that a fissured economy is bad, and can’t clearly define what you mean in the real world, almost any relationship can be determined to be joint-employment, including franchising.
Applying the specific fact base as outlined in the NLRB’s decision, with relatively few exceptions, excluding the temporary help-type industries, I know of no franchisor that would even consider retaining any of the rights and requirements imposed by Browning Ferris over Leadpoint Business Services. The reason for that has nothing to do with any historic concern over joint-employment, but is due to the franchisor focus on avoiding vicarious liability by eliminating any localized labor controls at franchisee-owned businesses. This was a change that had some resistance at the time, because moving to a standards approach from a control approach was hard to visualize.
For a detailed understanding of joint-employment, I would strongly suggest you read David Kaufmann’s in-depth analysis of joint employment that appeared in the Franchise Law Journal (http://www.americanbar.org/content/dam/aba/publications/franchising_law_journal/Spring_2015/FLJ%2034-4_01Kaufmann.authcheckdam.pdf).
To understand the NLRB today, reading The Fissured Workplace by David Weil, the Administrator of the Wage and Hour Division of the U.S. Department of Labor, is essential. This October Richard Griffin, the General Counsel of the NLRB and David Weil will be speaking at the ABA’s annual franchise forum, and I am looking forward to further understanding their positions.
In defense of the traditional view on joint-employment, Senator Lamar Alexander and Congressman John Kline have introduced the “Protecting Local Business Opportunity Act,” without any Democrat sponsors or supporters, and in several states laws have already been enacted or bills proposed for the same purpose. But, given the current administration, anything perceived as anti-union is not likely to become law and even though any NLRB action likely will be successfully challenged in court, that is a process that takes considerable time and cost.
Our clients have asked us if there is anything they should be doing today specific to Browning Ferris, and our answer is generally “nothing.” If they have been diligent in avoiding vicarious liability exposure, likely there is nothing more that they can do now. If they have any heightened risk, it is likely going to come from their supply chain requirements, and we are recommending to them that they have those agreements, and any potential human resource requirements they may contain, evaluated by knowledgeable legal counsel.
Brand control in franchising has evolved to where franchisors are focused on establishing and enforcing brand standards, and most franchisors avoid any day-to-day control over how their franchisees manage their businesses to meet those standards. If detailed processes or human resource practices that are unnecessary for a franchisee to achieve brand standards are imposed, those should have been eliminated years ago. While that likely will have a joint-employment benefit under Browning Ferris, it should be done anyway as a focus on avoiding vicarious liability risk.
Certainly, a critical area of concern for franchisors is how their field staff interacts with franchisees. Again, it has been best practice for years that care is taken in what field staff do and say during their field visits. What is contained in their reports, how they evaluate a franchisee’s performance, the recommendations they make, and their direct involvement with the franchisee’s staff are always important elements to consider in reviewing vicarious liability risk and based on what we know, that is likely going to be similar if not identical to joint-employment risk based on Browning Ferris.
Some of our clients have told us that their attorneys have recommended that they remove all information related to human resource practices from operations manuals and other material provided to franchisees. They also have received guidance to eliminate any involvement in franchisee staff training. While I am not a lawyer and generally don't tell a client to ignore legal advice, such advice is likely over-dramatic, unnecessary and brand challenging, and I push back when this is suggested.
There does not appear to be any compelling reason, based on the information at hand, to suspect that well written and constructed HR information provided by franchisors is going to be considered a joint-employment trigger. Depending on how training is conducted in the system and understanding how manuals are drafted and distributed, there is ample opportunity to review in advance of distribution the information being provided and make certain it is legally compliant or compliant in a way that minimizes any perceived or potential risk. In any event, the vicarious liability review conducted periodically by competent lawyers and consultants, a fairly standard best practice for franchisors, should be sufficient. But don't leave out a review of your disclosure document and agreement in the process. For new business owners, having some guidance as it relates to human resources is a substantive part of helping a franchisee succeed in their business, and withholding such information can prove detrimental to the success of the franchisee and the system as a whole.
Of greater concern to us, is how our franchisor clients are participating in the training of their franchisee’s staff. On franchises.about.com, Marla Rosner, Senior MSA Training Consultant, has published several articles with recommendations dealing with how franchisors should be involved in the localized training of franchisee’s employees. Written from the perspective of avoiding unnecessary vicarious liability, the articles make good reading as they may trigger ideas about possible changes you might want to consider. But again, you should be considering them from the vantage point of reducing vicarious liability anyway. You can contact Marla directly at Questo indirizzo email è protetto dagli spambots. È necessario abilitare JavaScript per vederlo. with any questions in this area.
Finally, based on the fact base in Browning Ferris, I suspect that there may be some potential but unlikely triggers in how franchisors collaborate with franchisees through the Franchisee Advisory Council or Franchisee Association. While it has always been a good practice to be diligent in this area anyway, agenda items and discussion points should be evaluated with legal counsel, regardless of joint-employer concerns.
Even if Browning Ferris does not have a direct impact on franchising, it likely will have an indirect benefit because it puts into alignment the interests of franchisors and franchisees in a way that few other outside challenges, with the possible exception of raising market level wages does. In dealing with AB525 in California the IFA and CFA collaborated on what is a reasonable conclusion and, I would expect, in dealing with joint-employment and other matters they will continue to do so. In making changes that may become necessary within a franchise system, similar collaboration between franchisors and franchisees will also be necessary. As always, franchising is resilient and will continue to evolve. And, despite what you may hear, the sky is certainly not falling and the franchise marketplace is doing just fine.
One curiosity that has not been raised during any of the discussion regarding the NLRB is the policy paradox of the Obama Administration's assault on franchising. The stated purpose of the joint-employer designation is to consolidate fissured industries and promote the growth of the middle class. Inherent in this approach is the presumption that unions promote and protect middle class employees and the wags would argue that the union campaign funds protect incumbent politicians of a single party and growing unions increases those funds.
The darker undercurrent to the fissured workplace argument is the class warfare/government dependence/paternalism theme where the government thinks that individuals are incapable of making good decisions for themselves and need to be dependent on large organizations like unions, large employers, or the government itself. With personal choice comes consequences, and eliminating independent contractors is beneficial to union organizing.
I would proffer that franchising is a better ticket to prosperity and for creating a middle class, since the franchisee, as an independent business owner, is not dependent on the government or unions for their economic existence. I would also expect that people will continue to read between the lines and try to divine what the NLRB’s intent is regarding the franchise relationship. But as of now and based on what we really know as fact, at least as it relates to the decision in Browning Ferris, we are fine

Fonte:http://franchises.about.com/od/franchiselegalissues/fl/The-Sky-is-Not-Falling.htm?utm_content=20150920&utm_medium=email&utm_source=exp_nl&utm_campaign=list_franchises&utm_term=list_franchises

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