States Lead the Charge Against Joint Employer Overreach

The National Labor Relations Board’s (NLRB) August 2015 ruling in Browning Ferris Industries completely upended the standard definition of “joint employer,” throwing thousands of business arrangements into limbo.  In doing so, the NLRB ignored legal precedent and can now hold franchisors liable with their franchisees for labor violations.  Despite this sweeping federal regulation, a plethora of state legislatures are defying the NLRB and passing legislation that preempts the new “joint employer” standard, opting instead for the traditional definition that franchisors and franchisees are separate entities.

A recent Bloomberg BNA article highlighted the role that IFA, along with other business oriented groups, has had on facilitating this proactive franchise legislation across the US.  “We are actively pursuing this legislation this year and have a strategy to continue pursuing this legislation in as many states as we can going forward,” said Jeff Hanscom, IFA director of State Government Relations. The IFA has successfully passed bills in Michigan, Louisiana, Tennessee and Texas, while legislation is moving in Colorado, Georgia, Indiana, Utah, Virginia, and Wisconsin.

Michigan is the most recent state to codify the franchisor-franchisee relationship, and bill sponsor Rep. Eric Leuthesuer (R) explained why he chose to take action on this issue: “What you are seeing in the states is legislatures looking at things that probably never needed to be addressed in statute because they were largely considered settled, common sense or intuitive for a long time. And now, because of court rulings, a lot of things that were common sense are now being thrown into some confusion, or potential confusion, or potential chaos. That’s not good for anybody.”

Through the Coalition to Save Local Businesses, the IFA continues to pressure Congress to act on the “joint employer” issue and provide a remedy for small business owners in America.  Judging by the success the IFA has had in state governments, it is clear that these legislators see the negative consequences impacting business owners in their districts, and states continue to lead the way.

Berlitz’ Pioneering Role in the History of Franchising


One of the earliest marketing efforts of Berlitz, from the Atlanta branch

Records accidentally discovered during a renovation, together with company archives, prove that Berlitz started franchising in 1889 and is perhaps, the oldest franchisor still franchising today.

In 1978, Berlitz was conducting some renovation works at its Brussels center.  During the renovation, one of the contractors accidentally knocked off a wall and, to the surprise of the construction crew and the center staff, they discovered a hidden chamber.  What they found in that chamber was a treasure of history; not only for Berlitz; but also, for the franchise community as a whole.

Berlitz was incorporated in Providence, Rhode Island, USA in May of 1878 by German immigrant Maximilian Berlitz.   Some of the files that were found in that chamber included student records, contracts, lease agreements, pictures, certificates of business incorporation and more.  For example, there was a memo from the then current Queen of Belgium, requesting to keep her enrollment with Berlitz discreet.  There were documents from Nicholas the II, last Tsar of Russia, records of Mr. Berlitz being personally responsible for teaching English to Emperor Wilhelm II and, more relevant to this publication, documents related to the beginnings of Berlitz franchising, dated over 127 years ago.

Records found in this incident, together with archives from Berlitz France, proved that Berlitz started franchising in 1889 and is, perhaps, the oldest franchisor still franchising today.  Singer, although it does not franchise anymore, has been often credited to be the oldest franchisor in modern history.  Nevertheless, if we go by the modern conceptualization of Franchising, Singer probably lacked one element: royalties.


Maximilian Berlitz

In 1888, Maximilian Berlitz granted its first Area Development Agreement for Europe to Henri Mallat, a dedicated Berlitz professor.  In 1889, Mr. Mallat granted the very first Berlitz Franchises in Germany and France.

In 1907, the Société Internationale des Ecoles Berlitz (SIEB) was set up. The new company was managed by Benoît Collonge & Wellhoff. The value of the company was based on 30 schools owned by the SIEB, 20 schools belonging to partners, 27 British schools and the franchise rights of 260 centers in Europe, Africa, Latin America and Australia. North America and Canada were managed by the Berlitz Schools of America (BSLA), of which Maximilian Berlitz was President.  By 1910, Berlitz already had more than 400 centers around the world.


One of the early Berlitz schools

At that time, French was a widely used language for business.  The French term that was used for Berlitz Franchises was “Concession”.

Berlitz started with five common types of Franchises:

  1. With obligation to open a Language Center in a city(ies), town(s) or a region (Designated Territory); within one year (Development Schedule)
  2. With obligation to open a Language Center in the Designated Territory within three years
  3. No obligation to open in the Designated Territory but payment of a higher annual [royalty] fee
  4. Franchise License for a private teacher to teach at a particular place; typically granted for smaller towns, or
  5. À la carte

Since the early years, the Berlitz Franchise Agreements were well-structured, and contained the modern Elements of Franchising.  Among other information, they contained:

  1. The use of trademark “The Berlitz School of Languages”
  2. The right and know-how to “open, operate and profit from a living languages school”
  3. Designated territory
  4. Term of agreement
  5. Renewal terms
  6. Use of “Operations manual” or detailed guidelines for the setup and management of the center, including advertisement, insurance, payment of taxes, heating and lighting
  7. Royalties, typically paid every 6 months
  8. Initial fee
  9. Transfer of Franchise rights upon agreement by Franchisor

By 1912, Berlitz Franchise Agreements where approximately 10 pages long and, in essence, they were very similar to the franchise agreements we use today.

Franchisees and their families were often housed in the school and managed the centers as family businesses.  Some centers were owner-operated and others had Center Directors, upon approval by Franchisor.  It was not uncommon for franchisees to own multiple units, even in multiple countries.

The Edwardian era was a period of expansion, where royals and celebrities were teaching or being taught at Berlitz Centers.  Alfonso XIII, King of Spain, was being taught English, French and German; while Leon Trotsky, James Joyce and Wilfred Owen were teaching at Berlitz centers in Mexico City, Trieste and Bordeaux, respectively.

Then, the period of the two World Wars came.  It was a veritable calamity for Berlitz.  The international and multicultural nature of Berlitz had encouraged mutual respect and admiration among its staff and students.  The company, which had always transcended borders, would become the victim of its own success.  Disaster was unprecedented.  Many schools closed following bombing raids, or as a result of regime changes or because of redefinition of national borders.  The Berlitz teams were largely made up of French, British and German teachers.  People who had been close friends would become future enemies**.

In 1940, during WWII, Thérèse Delpeux was elected President and Managing Director of Berlitz becoming, perhaps, the very first woman in history to lead a global organization.

After WWII, the era of The Wonderful World of Berlitz came**.  There was a fast recovery, mostly due to a special grant that the American Army awarded to all veterans based in Europe.  GI applicants living in Europe could register up to 25 lessons a week (1 lesson is 45 minutes) in one or more languages of their choice.  Then, in the Sixties, franchising took a second breath.  For companies and society, it was a carefree time of great optimism, renewal and rebirth.  Classes took place in an extraordinary atmosphere and coming to Berlitz meant combining the useful with the pleasurable**.

The Berlitz Opera center in Paris, also known as the “Palais Berlitz”, was a veritable hive of language activity.  It was frequented by stars from the world of entertainment (Maurice Chevalier, Louis de Funès, Gérard Depardieu, Claude Brasseur), politicians (François Mitterrand), members of royal families (the Duke of Windsor) , and other celebrities whose paths crossed in the enormous maze of classrooms (more than 100 in this center!)**.


Gina Lollobrigida and President Nixon using the Berlitz Italian Book

In 1966, Berlitz was acquired by Macmillan Inc. and, changing corporate strategy, the new ownership did not allow franchises from 1967 to 1972, with the exception of those granted in perpetuity; these being mostly in Egypt.

Then, in 1988, Macmillan Inc. was acquired by Maxwell Communication Corporation.  Upon the death of Robert Maxwell in the early nineties, Berlitz became fully owned by Fukutake Publishing Company (now Benesse Corporation); previously, a minority shareholder. Today, Benesse is one of the largest privately held education companies in the world, with annual sales of approximately 4.5 Billion USD a year.

Today, Berlitz continues to be the leading language and communication skills training company worldwide.  It operates over 450 centers in more than 70 countries.  Berlitz has taught millions of people how to speak a new language, better communicate and helped achieve their dreams.


From left to right: Mark Harris, Rogelio Martinez, Constant Reinders and Marc Verger, during the Berlitz 2015 Franchisee Convention in Zagreb, Croatia.

Special thanks to Mr. Mark Harris, Chairman of Berlitz Corporation, who appointed Mr. Constant Reinders to study, sort and protect the Berlitz archives containing over a century of Berlitz history.  And thanks to Constant Reinders who, after 40 years of service as Berlitz employee, took this new assignment and published the book “Berlitz – 130 Years of Innovation and Passion for Teaching”.  This article based most facts and figures from Mr. Reinders book.  ** indicates excerpts from Mr. Reinder’s book.

About the author: Rogelio Martinez, CFE, is the President of Berlitz Franchising Corp.,  He is a member of the IFA’s International Committee and speaks 5 languages.

New Study: Franchise Businesses Suffer Most Under $15 Minimum Wage Increases

Increasing the minimum wage has long been a popular tactic for liberals in the political sphere seeking “fairness” for workers.  To the casual observer, the idea that someone should earn a so-called “fair wage” appeals to their moral conscience without immediately conjuring up the economic impact of such actions on a large scale.

While there has recently been a national debate about raising the current federal minimum wage from $7.25, Congress has rebuffed those efforts, based largely on evidence from the nonpartisan Congressional Budget Office that 500,000 workers would lose their jobs, wiping out any improvement in wage levels for those entry-level workers who remain in the workforce. In response, an increasing number of states and cities are being pressured by liberal activists to raise their own minimum wage.

Most localities have passed new wages based on economic and cost of living conditions. However, in some places, a unique and potentially damaging characteristic of some wage proposals has a trend to include a provision requiring families in local communities who own franchises to pay wages higher and faster than those paid by non-franchise businesses.

Take the city of Seattle or the state of New York for instance. Each passed an increase in the minimum wage to $15 per hour, both discriminatory in their own way.  In Seattle, the legislation considers independently operated franchisees as ‘large employers’ because they contract with a brand, and subsequently forces them to implement the increase faster than local, non-franchise businesses. Meanwhile, in New York, Gov. Cuomo unilaterally targeted quick service restaurants through a “Fast Food Wage Board” which consisted of no small business owner representation. This wage increase required those families who operate a local restaurant with 30 or more locations nationally to pay a $15 minimum wage, and leaving other businesses at the more modest $9 state-wide minimum wage.

Perhaps the most perplexing notion in both cases is that wages were raised under the auspices of fairness.  What could possibly be fair about requiring one family who owns a small business to implement a wage at a faster pace than another, or leaving those employees who DON’T work for these businesses at a lower rate.

To address the impact of this new trend in policymaking, new research from the Employment Policies Institute (EPI) overwhelming disproves the notion that franchise businesses could absorb an increase in the minimum wage easier than non-franchise businesses.  According to the study, franchise businesses would be impacted more, with over two-thirds of franchise small business owners saying that they would be forced to reduce staff or reduce hours to compensate, compared to roughly half of non-franchise businesses.  Additionally, 54 percent of franchisees said they would likely use more automation, compared to just 37 percent of non-franchise businesses.

“This study confirms that local franchise businesses, who form the fabric of their communities, should not be unfairly targeted for higher labor costs than non-franchise businesses,” said IFA Director of State Government Relations and Public Policy Jeff Hanscom. “Arbitrarily forcing higher labor costs on franchise small businesses will reduce employment for those who need it most, while stripping neighbors of their ability to own a small business.”

As policymakers around the country continue to face pressure from local activists seeking to raise the minimum wage to exorbitant levels, it is clear they should avoid choosing winners and losers.

At Kemp Forum, Opportunity Agenda Thrives

All too often, when Americans look to politicians in Washington, D.C. for solutions to America’s numerous domestic issues, a convoluted package of policy proposals and regulations overwhelm the menu. Rather than addressing the root causes of economic distress or poverty, politicians provide patch-work solutions that often cost tax payers, while failing those in need.

This past weekend, however, some of the most powerful thought leaders and politicians in America gathered at the Kemp Forum on Expanding Opportunity in South Carolina to buck the trend, and prescribe an avenue for alleviating poverty that focuses on people, rather than stale policy. Organized by the Jack Kemp Foundation, the namesake organization for the late Congressman and “bleeding heart” conservative Jack Kemp, the Expanding Opportunity event sought to examine why the so-called “war on poverty” has failed so many of our fellow citizens, and what we as a nation can do to enable prosperity.

Moderated by Speaker of the House Paul Ryan (R-WI) and Sen. Tim Scott (R-SC), the event included panels with six Republican presidential hopefuls and American Enterprise Institute President Author Brooks, with a focus on reforming areas from education to spurring job growth. The participants rightly noted that America was founded on the principle that everyone would have the same opportunity to succeed in life, not the same guaranteed outcome. As part of this narrative, the moderators drove the dialogue that our country is at its best when innovators and entrepreneurs thrive, not when the government continues to implement workplace regulations and social assistance programs that entrench the cycle of poverty and big government.

While everyone on stage agreed that small businesses are driving the economy, it was obvious that a litany of failed policies continue to plague the opportunity agenda.  Sen. Scott noted that in a time when young people need to develop professional skills and learn the responsibility that comes with work ethic, inane policies such as $15 minimum wage proposals will force youth unemployment rates to skyrocket, leaving yet another generation at a gaping disadvantage to compete in the labor force. As business owners reconcile with increasing costs, some will be forced to shutter their dream. Several candidates made the plea that power return to the states, arguing that bureaucrats in Washington, D.C., who are out of touch with small communities, are generating burdensome rules that make entrepreneurship nearly impossible.

Presidential politics always brings with it a plethora of idealistic proposals and rhetorically pleasing soundbites. But, at the Kemp Forum on Expanding Opportunity, audience members were treated to solutions that could start a wave of growth for the next generation. Poverty is not eradicated by simply instituting equality with social programs and regulations.  In order to solve poverty, it must be tackled at its root cause: replenishing a lack of opportunity that will enable hard-working Americans the chance to make their own American Dream.  Franchising is a clear path to giving Americans that chance. The IFA looks forward to engaging the candidates and working with campaigns to ensure that America continues to be a land of opportunity. Guided by the new messaging and leadership of Speaker Ryan, our Country and its entrepreneurs can grasp greatness and ensure that everyone has the freedom to pursue their goals, irrespective of politics.

SBA Administrator Testifies Before Congress, Tells of Progress in Assisting Small Business Owners

On Thursday, Jan. 7, the House Committee on Small Business held a hearing on the status of the U.S. Small Business Administration (SBA), and heard testimony from SBA Administrator Maria Contreras-Sweet as the lone witness.  Although the hearing was convened to address a recent report by the Government Accountability Office (GAO) that criticized the SBA for its failure to implement management recommendations dating back several decades, the Administrator took the opportunity to highlight the areas where SBA has succeeded in serving America’s small business and helping them continue to grow the economy.

In her testimony, Administrator Contreras-Sweet emphasized that, despite the criticism from the GAO and the Committee, FY 2015 was one of the most successful years in the history of the agency.  SBA backed 22 percent more loans to American small businesses, with a 23 percent increase in the dollar value of those loans compared to FY 2014.  Although lending to small businesses has increased in the years since the recession, she said, it has only returned to 84 percent of its pre-recession level, making the SBA’s role in helping small businesses secure vital financing even more important.  In addition, Contreras-Sweet shared that loan approvals to women in the flagship 7(a) loan program increased 29 percent over 2014, while loan approvals to minorities increased 27 percent and those to veterans increased 47 percent.  All of this progress, the Administrator noted, occurred while the 7(a) program has operated at zero-subsidy, with no direct cost to taxpayers.

The well-established 7(a) program is paramount in ensuring that qualified small businesses, especially franchise businesses, are able to survive and increase their production in a fragile economy.  In 2014 alone, SBA lending programs were used in the financing of nearly 30,000 new franchised units and guaranteed an estimated $6 billion in loans to new and prospective franchisees.  That number is likely to increase since SBA lending for the 7(a) program increased by 23 percent in 2015.  In 2015, nearly a quarter of all new single-unit franchises were financed with the help of SBA loan guarantees, with 17 percent of medium-sized multi-unit franchisees and 19 percent of large multi-unit franchisees utilizing SBA-guaranteed loans to expand their operations.  According to IFA estimates, for every $1 million in lending to a franchise, 40 new direct and indirect jobs are created.  These figures show that SBA loan programs are a vital lifeline to franchises and other small businesses as the small business lending market continues its recovery.

Although the Administrator focused on many of the agency’s high points, the Committee members sought clarification on the Administrator’s plans to address management deficiencies in cybersecurity, staff retention, and disaster relief programs.  Committee Chairman Steve Chabot (R-OH) pressed the Administrator for a commitment to addressing the GAO report’s recommendations, explaining that 62 of the GAO’s 69 recommendations have not been implemented.

IFA submitted a statement for the hearing record praising the SBA for its essential loan programs, while stressing the need for continued recognition of the needs of small business owners in the U.S. Congress.  The Committee will continue with its series of hearings on the oversight of the SBA this week.  SBA Associate Administrator of Capital Access Ann Marie Mehlum and Linda Rusche, Director of the Office of Credit Risk Management will testify on the status and management of the SBA’s capital access programs tomorrow at 10:00am ET.  For more information on last week’s hearing, or for more information on this week’s activity, click here.

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