Congressman Ellison’s Franchise Legislation: Harmful and Unnecessary

By Elizabeth Taylor, Vice President of Federal Government Relations & Public Policy, Counsel

Congressman Keith Ellison (D-MN-05) recently introduced the SBA Franchise Loan Disclosure Act of 2015 (H.R. 3195). He claims the bill will help small business franchise owners by adding transparency to the process of applying for Small Business Administration (SBA) guaranteed loans. In fact, the legislation will harm small businesses. Chock full of unnecessary regulations, the measure unfairly targets franchise loans and would deter small business growth and job creation.

Franchising is flourishing. There are currently more than 780,000 franchise businesses throughout the U.S. in over 300 different industries ranging from restaurants to in-home healthcare.  Franchising allows thousands of entrepreneurs to become small business owners, and supports 8.9 million jobs nationwide. Franchise growth has outpaced the growth of other small businesses for the past 5 years and the trend is expected to continue.

Franchisees aren’t just successful — they’re also satisfied.  A recent survey of franchisees published by the Franchise Business Review found that 80 percent would rate their franchisors highly and recommend their brand to others. Three-fourths of franchisees would “do it all over again.”

This is why imposing additional red tape on franchises would serve only to stifle business creation and employment opportunities for many Americans. The Ellison bill singles out franchise businesses by imposing burdens on the franchise loan process – even though franchise businesses account for only 6 percent of the SBA 7(a) loan portfolio. There is no evidence that franchise loan failure rates are significantly higher than other businesses.  In fact, according to a recent SBA loan study by FRANdata, franchise small business are less likely to default on their SBA loans than non-franchise businesses.  The default rate for franchise loans is 13.73 percent compared to 17.11 percent among non-franchise loans. In other words, the franchise loan default rate is 20 percent lower than non-franchise loans.

While defaults in business loans are unfortunate, they happen in all types of of businesses, not just franchising. The SBA 7(a) loan program has been overwhelmingly beneficial for franchise small business owners and the overall economy. Six out of seven franchises that receive SBA loans do not default and actually go on to grow their businesses.

For the relatively small percentage of franchise brands that do default, this legislation would be of no assistance. What’s more, singling out one or two franchise brands would be misguided. To the extent any problem can be identified, it would be with larger lenders. Big lenders like Banco Popular have a 40 percent default rate for franchise and non-franchise loans.  This rate is twice the average rate (16.8%) of the top 50 SBA lenders.

The Ellison bill would also create a conflict between two agencies, the SBA and the Federal Trade Commission because it would require changes to the FTC Franchise Rule. Although many franchisors disclose financial performance data to potential franchisees, the franchise rule does not require financial performance disclosure by the franchisor.  That would have to change under the Ellison bill, and the FTC no doubt would fight the alteration.

Mr. Ellison has a history of taking policy positions that would harm small businesses. It’s curious that a lawmaker with such a record would now take an interest in the arcane process of SBA loans for franchisees. Mr. Ellison does have one link to franchising – his largest campaign contributor has been the Service Employees International Union, which is on a well-documented mission to destroy the franchise business model. Perhaps the true motivation behind the Ellison bill isn’t to help franchising but to prevent more franchise small businesses from opening at all.

Business Leaders Urge Senate to Restore Full-Time Work Week

By Kevin Serafino

As the U.S. Senate prepares to adjourn for its August recess, business leaders and employers from across the country are urging their elected officials to consider a critical change to the Affordable Care Act (ACA) that would restore the 40-hour full-time work week and put more pay in the pockets of American workers.

Yesterday, members of the More Time For Full Time coalition, led by the International Franchise Association and including more than 400 business trade associations from all 50 states, sent a letter to Senate Majority Leader Mitch McConnell and Democratic Leader Harry Reid pressing them to consider S.B. 30, the Forty Hours Is Full Time Act, upon their return to Washington in September. The legislation would harmonize the definition of full-time employment in the ACA with the traditional 40 hours per week definition, benefiting employees by allowing for more hours and income and helping employers by removing a burdensome new regulation.

Under the ACA’s current definition of full-time employee, set at 30 hours per week, many employees are being hurt by lost wages and hours because this new standard makes it more expensive for employers to allow part-time employees to work more than 30 hours through picking up additional shifts and adding flexibility to their schedules.

The Forty Hours Is Full Time Act currently has 42 co-sponsors in the Senate, while 73 Senators have indicated their belief in restoring the 40-hour work week.  Franchise business owners will meet with their elected officials at home throughout the Congressional recess to advocate for policies that will allow their businesses to thrive and create jobs in their local communities.

To read the More Time For Full Time coalition’s letter to Senate leadership, click here.  To contact your elected officials and urge them to restore the 40-hour work week, click here.

Local Franchise Owners Warn Senate HELP Committee that Proposed NLRB Joint Employer Changes Will Reduce Entrepreneurship Opportunities

Today, the Senate Committee on Health, Education, Labor, and Pensions (HELP) held a hearing to examine the impact that National Labor Relations Board (NLRB) general counsel Richard Griffin’s recent actions could have on small businesses all over the country. Last year, Griffin filed an amicus brief in the Browning Ferris Industries case that recommended franchisors be considered joint employers with franchisees. Later, he authorized dozens of complaints against a franchisor, naming it as a joint employer with franchisees. The hearing, titled Who’s the Boss? The “Joint Employer” Standard and Business Ownership, featured testimony from two franchisees who told the committee members of the negative impacts that changes to current joint employer standards would have on their small businesses.

Gerald Moore, the owner of five The Little Gym franchises in Tennessee, North Carolina and South Carolina, explained that such a radical change to established labor law would fundamentally undermine the franchise relationship, saying that it “would mean that my franchisor would be jointly responsible for all of my employment-related liabilities… This will mean increased control and more day-to-day involvement by The Little Gym International.”

John Sims IV, who owns a Rainbow Station franchise in Richmond, Va., added that the general counsel’s actions were already having a negative impact on his business’ plans. “My wife and I have often talked about opening a second Rainbow Station location,” Sims explained. “However, the uncertainty as to what the future holds for franchisees and other small businesses has forced us to put that plan on hold. It simply does not make sense to try and grow our business at a time when we do not know what the future of our business will be.”

Although some Democratic members of the committee claimed the impact of such a change would be limited, HELP Committee Chairman Lamar Alexander (R-TN) agreed that a dramatic change in joint employer standards would have negative consequences that reached far beyond the franchise community. “This case doesn’t just affect franchisees, it will affect every business that uses a subcontractor or contracts out for any service.  That includes most of the 5.7 million businesses under NLRB jurisdiction in America – because most businesses contract for some service.”

You find an achieved webcast of the hearing, along with the witnesses’ testimony, here. If you would like more information on the joint employer issue, please visit IFA’s Labor and Workforce Hub. You can also be a part of IFA’s nationwide grassroots efforts to preserve the franchise model by joining the Franchise Action Network.

IFA Survey Finds Optimism About the Economy, but Concern Over Regulation and Joint Employer Issues

Last week’s blogpost helped point out data you could use from the Franchise Business Economic Outlook: 2015 with meetings with your elected officials and policymakers to make the case for franchising. Turning to IFA’s recent Franchise Business Leader Survey, you might find these results useful in discussing some overall issues affecting today’s franchise business leaders.


Outlook for U.S. Economy

IFA members are more optimistic about the U.S. economy in 2015 compared to their survey responses last year.  More than one-half of the franchisors and franchisees and two-thirds of the suppliers believe the economy will be “better” in 2015, compared to only 40 percent of franchisors, 15 percent of franchisees and 35 percent of suppliers who had a positive outlook last year.

However, the survey shows that 97 percent of respondents believe that the joint-employer ruling, were it to take effect, would have a negative impact on their business, with 82 percent saying the impact would be “significant.”

The Franchise Business Leader Survey also reveals concern about the enactment of discriminatory increases in the minimum wage. More than 85 percent of franchisor and franchisee members believe that recent efforts by some cities and states to increase the minimum wage will negatively impact their business. In addition, more than two-thirds of franchisors and 85 percent of franchisees reported that their businesses have already been “negatively impacted” by the Affordable Care Act. Below you’ll find how franchisees and franchisors prioritize issues affecting them:


Visit IFA’s Franchise Labor & Workforce Hub, a new website for franchisees to provide key guidance on labor and workforce issues and join IFA’s Franchise Action Network to learn how to have a direct, positive impact on the future of the franchise industry.


Making the Case for Franchising Just Got Easier

Franchise businesses are expected to grow and create more jobs at a faster pace than the rest of the economy in 2015 for the fifth consecutive year.

You recently scheduled a meeting with your local lawmaker, or even better, have plans to have your elected official visit your brand’s headquarters or a local unit.  Everything is moving along great. Or perhaps you’re been invited to speak before a community group or professional organization about your franchise business. You know your brand (or brands if you’re a multi-unit, multi-brand franchisee) inside out, but how about getting some stats that highlight the overall franchise industry?

That’s where the Franchise Business Economic Outlook: 2015, released yesterday by IFA’s Educational Foundation and IHS Economics, can help.  According to the report, franchise businesses are expected to grow and create more jobs at a faster pace than the rest of the economy in 2015 for the fifth consecutive year.

Here are some key findings from the business outlook:

  • Franchise businesses will add 247,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs, over last year. That is on top of the 235,000 franchise jobs that were added in 2014.
  •  The number of franchise establishments will grow this year by 12,111, or 1.6 percent, to 781,794.
  • Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion.
  • The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year, which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole. The franchise sector will contribute about 3 percent of the U.S. GDP in 2015.
  • The IFA Franchise Business Index— which is a mixture of employment, sales and credit conditions — also rose smartly, especially at the end of last year. In November, the index was up 3.1 percent compared to November 2013, the biggest year-over-year gain since the start of the Great Recession in 2008.
  • The outlook for growth among the different types of franchises will differ, with quick service restaurants ranking first and retail businesses ranking second in terms of increased employment.

Find the full IHS Economics report here and see the updated infographic here.