Franchisor Executive Addresses House Panel on Franchise Operations

Today, a panel of industry, labor and legal representatives gathered in the Rayburn House Office Building to testify before the Subcommittee on Health, Employment, Labor and Pensions of the House Committee on Education and the Workforce.  The hearing entitled, “What Should Workers and Employers Expect Next from the National Labor Relations Board?” concerned the NLRB’s propositions that may affect the business climate for businesses of all sizes, including many franchise businesses.  Of particular interest during the hearing was the issue of joint-employer status, which if applied to franchising would have drastic consequences.  As Subcommittee Chairman Phil Roe (R-TN) noted in his opening remarks, “A standard has been in place for 30 years to determine when two employers share immediate and direct control over essential terms and conditions of employment … This isn’t a new concept, so the board’s recent solicitation [for clarification on the definition of joint-employers] is highly suspect and strongly suggests it’s eager to abandon existing policies in favor of a new standard more favorable to union interests.”

While the Chairman’s concern was shared by many members of the Committee, it was the testimony from Andrew Puzder, CEO of CKE Restaurants (Carl’s Jr. and Hardee’s) and IFA Board Member that drove home the message regarding the harmful effects of joint-employers status on franchising.  During his testimony, Mr. Puzder articulated that the relationship between franchisors and franchisees is one of mutual benefit, but separate operation.  Ranking Member John Tierney (D-MA) posed a series of questions to clarify the relationship, “Do Franchisees generally hire people? … Same with firing? … Same with disciplining?” To all of these, Mr. Puzder delivered an affirmative yes, signaling that the franchisees truly do manage their own businesses at every turn.  To assert that franchisors completely mandate how franchisees run their businesses an insult to the thousands of entrepreneurs who have utilized the resources that the franchising model provides them to go into business for themselves.

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Mr. Puzder went on to note that labeling franchisors as joint employers would drastically alter the employment landscape.  While CKE and its franchisees are responsible for over 70,000 jobs in the United States, joint-employer status would require massive oversight on CKE’s behalf, meaning less autonomy for franchisees and increased costs for the franchisor to monitor the employment process and administrative overhead.  Not only would this convolute the hiring process and discourage expanding employment, but it would also take away the equity franchisees created in their own business.

Joint employer status is an important issue for those in the franchise community, which is why the International Franchise Association will continue to uphold the mutually beneficial business model of franchising.  Rather than cater to special interests and politically-motivated unions, the NLRB should protect hard-working business owners and the thousands that they employ.

Please click here to view today’s hearing.

Franchising Poised for Robust Growth in 2014

Franchise businesses continue to power up the U.S. economy and two just-released reports explain why.

FRANdata’s The Small Business Lending Matrix & Analysis finds that the industry’s perennial lending shortfall – the difference between projected loan demand and loan supply – will likely be cut in half this year, positioning the franchise industry for robust growth. IHS Global Insight’s Franchise Business Outlook reports that franchise industry growth has outperformed the overall economy for the past six years. Both reports are prepared for the International Franchise Association Educational Foundation.

“With seven out of 10 franchise business lines adding jobs faster than the private sector at-large, the franchise business model continues to provide jobs and entrepreneurship opportunities for workers and entrepreneurs in sectors as diverse as hotels, auto, business and personal services and restaurants,” said IFA Pres. & CEO Steve Caldeira, CFE.  “One reason for this success is that credit is steadily becoming more available for franchise expansion.”

Here are a few key findings:

  • Franchise demand from both new and existing franchisees is expected to exceed 73,800 unit transactions in 2014. This represents a 12.4 percent increase in demand over 2013 and an 18.8 percent increase over 2012. (FRANdata)
  • To satisfy this demand, franchise businesses will require $29.4 billion in lending. Of this demand, banks will make $28.1 billion available. These funds will provide financing for 70,500 unit transactions, which will create or maintain more than 1 million jobs and support $138 billion of annualized economic output. (FRANdata)
  • Franchise employment is expected to increase by 2.6 percent in 2014, faster than the 2.5 percent growth in 2013 and outpacing projected total employment growth in the United States by 0.8 percentage points. (IHS Global Insight)

Franchises are expected to add 221,000 new jobs in 2014. Moreover, with 2.6 percent employment growth, franchises are adding jobs faster in 2014 than 2013 and outpacing projected total employment growth in the United States by 0.8 percentage points. (IHS Global Insight).

Find an updated Economic Outlook Infographic and release for more details.

IFA Statement on Federal Contractor Minimum Wage Rules

IFA Statement on Federal Contractor Minimum Wage Rules

WASHINGTON, June 16—International Franchise Association President & CEO Steve Caldeira, CFE, released the following statement regarding the U.S. Department of Labor’s proposed rule to raise the minimum wage to $10.10 per hour for federal contract workers:

“The Department of Labor’s proposed rules raising the minimum wage for contract workers, including employees of franchised establishments on military bases, will lead to lost jobs, less sales and fewer hours for employees. Franchisees that are forced to pay a steeply increased minimum wage, while lacking the flexibility to increase prices, will be unable to renew their contracts, closing franchise establishments and depriving military communities of jobs often held by military dependents.

“We are extremely disappointed in the proposed rule, and we hope the Department of Labor will provide sufficient time for businesses to submit comments, with the goal of mitigating the proposal’s negative impact on franchised small businesses.”

In February, President Barack Obama issued Executive Order 13658, directing the Department of Labor to issue regulations to increase the minimum wage for workers of federal contractors to $10.10 per hour.

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About the International Franchise Association The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. Celebrating over 50 years of excellence, education and advocacy, IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising. Through its media awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the economic impact of the more than 825,000 franchise establishments, which support nearly 18 million jobs and $2.1 trillion of economic output for the U.S. economy. IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.

1501 K Street, N.W., Suite 350   Washington, DC 20005  USA

Phone: +1 202/628-8000    Fax: +1 202/628-0812     www.franchise.org

Congressional Subcommittees Investigate ACA Employer Reporting and Individual Tax Credits

Yesterday the Health and Oversight Subcommittees on House Committee on Ways and Means conducted a hearing surrounding tax subsidies under the Affordable Care Act.  Health Subcommittee Chairman Kevin Brady (R-TX) and Oversight Subcommittee Chairman Charles Boustany (R-LA) convened the joint hearing to discuss the income verification system used to determine individuals’ eligibility for tax credits to purchase insurance, and to address reports of incorrect tax credit payments being issued and later reclaimed by the Internal Revenue Service (IRS).  The panel of witnesses included experts in health and tax policy including Douglas Holtz-Eakin, President of the American Action Forum and Katie Mahoney, Executive Director of Health Policy for the U.S. Chamber of Commerce.

Much like the sentiment towards the law itself, the views expressed in the joint hearing were split among partisan lines.  In opening remarks, Chairman Brady and Chairman Boustany expressed deep concern with the lack of accountability and efficiency with the current income verification system and eligibility requirements for tax credits.  Chairman Brady noted that, “Today, eight months after the start of open enrollment and well over a month after the extended open enrollment ended, the income and eligibility verification system is not completed.  And the burden and the cost of that failure will fall on the American people.  That is simply unfair and unacceptable.” Without proper income verification, individuals in some cases are receiving incorrect tax credits, which they are then required to repay months later when filing tax returns.  In order for the verification system to function correctly, massive amounts of data is required to be submitted by employers.  However, due to delays in the employer mandate, the regulations around employer reporting requirements have also been delayed.  During her testimony, Katie Mahoney from the U.S. Chamber of Commerce acknowledged that it is absolutely necessary for more flexibility for employers to come into compliance with the regulations of the ACA.

The International Franchise Association has submitted comments regarding employer reporting requirements to the IRS and Department of the Treasury as part of a coalition striving to increase flexibility for employers.  Accurate employer reporting is crucial to the success of other parts of the ACA, but it must be implemented responsibly and without disrupting employers who have already seen large cost increases because of the employer mandate to provide health insurance to employees.  In addition to pushing for changes to the definition of full-time employee, the IFA will continue to protect franchise business owner’s interests from the potentially harmful effects of the ACA requirements.

IFA Files Lawsuit Against Seattle for Equal Treatment

 

 

SEATTLE, June 11, 2014 – The International Franchise Association (IFA), a Washington, D.C.-based trade group, and five franchisees today filed a lawsuit in U.S. District Court in Seattle seeking to block Seattle’s recently enacted law to increase to the city’s minimum wage to $15 per-hour. The complaint alleges the new law illegally discriminates against franchisees and improperly treats them not as the small, locally-owned businesses they are, but as large, national companies.

Seattle Mayor Ed Murray last week signed the law, which requires large businesses, defined as those with more than 500 employees, to raise the minimum wage they pay their employees to $15-an-hour over three years beginning on April 1, 2015.  Smaller businesses have an extra four years, or a total of seven years, to phase in the wage increase.

IFA’s lawsuit asserts that the Seattle statute unfairly requires Seattle’s 600 franchisees, who own 1,700 franchise locations and employ 19,000 workers, to meet the three year deadline for large businesses simply because they operate as part of a franchise network. The lawsuit argues that the Seattle ordinance defies years of legal precedent clearly defining a franchisee as an independent local business owner who operates separately from the corporation that provides brand and marketing materials.

“Hundreds of small, locally-owned businesses and thousands of their employees are unfairly threatened by Seattle’s new law. We are not seeking special treatment for franchisees, we are just seeking equal treatment. The city’s minimum wage statute arbitrarily and illegally discriminates against franchisees and significantly increases their labor costs in ways that will harm their businesses, employees, consumers and Seattle’s economy,” said Steve Caldeira, IFA president & CEO. “We hope the court will block the ordinance to save jobs and prevent Seattle from unfairly singling out one type of business – a franchise – for punitive treatment.”

“Seattle’s new minimum wage law unconstitutionally discriminates against franchisees by categorizing them as big businesses even when they are small and independently owned. A single hotel or restaurant can be treated as if it employs more than 500 people even when it actually employs only 15 people,” said Paul D. Clement, a partner at the law firm Bancroft PLLC and a former U.S. Solicitor General. “We’re asking the federal court to stop this unfair attack on small business owners who happen to be franchisees.”

The complaint names as defendants the City of Seattle and the Director of the Department of Finance and Administrative Services. It seeks an injunction to stop the law from going into effect as scheduled on April 1, 2015. The plaintiffs are IFA; Charles Stempler, owner and operator of two AlphaGraphics stores in Seattle and three elsewhere in Washington State; Katherine and Mark Lyons, owners and operators of BrightStar Care of North Seattle; Michael Park, General Manager and owner of a Comfort Inn in Seattle and president of the Korean American Hotel Owners Association (KAHOA); and Ronald Oh, General Manager and an owner of a Holiday Inn Express in Seattle.

The lawsuit alleges that the ordinance violates the Equal Protection Clause of the U.S. Constitution by arbitrarily discriminating against small businesses simply because they are franchises. For example, a non-franchise company with 450 workers is categorized as a small employer and gets extra time to comply with the law. But a franchisee with just five employees is considered a large employer – and gets less time to raise its wage floor – if its franchise network employs more than 500 workers nationwide.

The lawsuit also contends that the ordinance violates the Commerce Clause of the U.S. Constitution because it imposes regulations based partly on business occurring in other states. For instance, if a Seattle franchisee has only a few workers in Seattle, but its franchisor’s network has more than 500 workers out of state, it is classed as a large employer and gets tougher treatment. Under the new law, a Seattle-based business that happens to be associated with a national franchise can be forced to pay a higher minimum wage than a non-franchise business of similar size.

The complaint also argues that discrimination between franchise and non-franchise businesses is prohibited under the Washington State Constitution and that the Seattle ordinance imposes health care changes that violate the federal labor statute called the Employee Retirement Income Security Act or ERISA.

Go to SeattleFranchiseFairness.com to learn more about the issue and the coalition of Seattle small business owners working together to oppose the franchisee provisions in the city’s minimum wage law. The site, which will be updated regularly, includes video, a petition and an outreach tool for supporters to contact the City Council. Read the full complaint here. Case number: 14-848  

ASSOCIATED PRESS: Lawsuit Challenges Seattle’s $15 Minimum Wage

FORBES: Crusade Begins Against Seattle Minimum-Wage Law’s Treatment Of Franchise Owners

KIRO- Seattle Minimum Wage Coverage

NATION’S RESTAURANT NEWS: San Francisco Proposes $15 Minimum Wage

LOS ANGELES TIMES: Group Of Seattle Franchise Businesses Sue To Stop $15 Minimum Wage

WALL STREET JOURNAL REAL TIME ECONOMICS BLOG: Trade Group Sues to Block Seattle’s Minimum-Wage Law

PUGET SOUND BUSINESS JOURNAL: Fast-Food Eatery Togo’s Will Expand To Seattle (Not Afraid Of $15 Wage)

REUTERS: Trade Group, Franchisees Sue To Block Seattle Minimum Wage Hike

Q13FOX: Franchise trade group files suit against Seattle’s $15 minimum wage law

KING5 NEWS: Franchise owners file federal lawsuit over $15 minimum wage

THE SEATTLE TIMES: Franchisees sue city over transition period under new wage law

KING5 NEWS: Seattle Mayor Ed Murray Responds To Franchise Lawsuit

KING5 NEWS: IFA Files Lawsuit Against Seattle Minimum Wage Law

NORTHWEST CABLE NEWS (Northwest News Today): Seattle Minimum Wage Coverage

SEATTLE WEEKLY NEWS: Challengers Line Up To Thwart Seattle Minimum-Wage Bill, Including Tim Eyman

ASSOCIATIONS NOW: Minimum Wage Law: Franchise Association Files Suit Against Seattle

MANUFACTURING BUSINESS TECHNOLOGY: Seattle’s Minimum Wage — The Next Chapter

SEATTLE WEEKLY NEWS: International Franchise Association Goes On the Offensive with Seattle Times Ad

CREATIVE COMMONS GROUND REPORT BLOG: Seattle Raises Minimum Wage To $15/Hr

ENTREPRENEUR: Franchisees Take Action Against Seattle’s Minimum Wage Law

FOX BUSINESS: Franchise group sues to block Seattle’s minimum wage

INDUSTRIAL DISTRIBUTION: Seattle’s Minimum Wage — The Next Chapter

FOX NEWS: Seattle Business Owners React To Minimum Wage Increase

WALL STREET JOURNAL LIVE: Labor’s War on Franchises

FOX NEWS: Businesses Launch Legal Challenge To Seattle’s $15 Minimum Wage

BLOOMBERG: When Minimum Wage Laws Count Small Franchisees As Big Business

THE SEATTLE TIMES: Employers worry over effects of $15 wage law

ASSOCIATED PRESS: Minimum Wage Issue Pits Franchisees Against Cities

FOX BUSINESS: IFA Says Optimism Driving Franchise Growth

WORK PLACE CHOICE: SEIU’s Illegal Plan To Unionize Small Businesses Imposes Heavy Costs

THE BLAZE: Big Labor Has Some New Tricks Up Its Sleeves

TOPEKA METRO NEWS: Minimum Wage Issue Pits Franchisees Against Cities

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