House Hearing Demonstrates New DOL Regulations Will Hurt Businesses and Workers

On Wednesday, June 10th, major regulatory changes expected from the U.S. Department of Labor (DOL) this summer were the subject of a House Subcommittee on Workforce Protections hearing. The forthcoming changes include the potential doubling of the salary threshold for overtime exemption and a new test for the primary duties of overtime-exempt workers. These modifications should concern franchise businesses, as they could severely limit opportunities for lower-level employees to advance in rank, limit the flexibility of business owners to manage their workers as they see fit, and increase compliance and payroll costs.

Subcommittee Chairman Tim Walberg (R-MI) shared his hope that despite an “administration notorious for overreach”, the Department of Labor should listen to employers’ concerns, and put forward a “proposal that encourages rather than stifles productivity, personal opportunity, and economic growth.”

The Subcommittee heard testimony from industry experts and academics regarding the current and proposed regulatory framework. While the witnesses disagreed in some aspects, they all agreed that the current enforcement structure of the Fair Labor Standards Act (FLSA) of 1938 needs to change. Three of the key witnesses were: Seth Harris, former Acting Secretary of Labor, Jamie Richardson, a Vice President of White Castle, Inc., a well-known quick service restaurant chain and Leonard Court, a labor lawyer and member of the U.S. Chamber of Commerce Labor Relations Committee.

The majority of Mr. Harris’ testimony addressed why the DOL should prioritize combating income inequality by raising the Federal minimum wage and increasing the salary threshold. To back up his claims, he relied on his theory that workers will see pay increases because employers will be forced to reclassify previously overtime-exempt workers as hourly workers, and these workers will then get more 1.5x pay for overtime for the work they previously did on salary.

Mr. Harris’ theories were countered by Mr. Richardson of White Castle, Inc., whom represented the views of many private-sector companies. Mr. Richardson explained that these new regulatory changes will add significant compliance costs, drive down worker opportunities and disrupt business in a negative manner. For example, of the over 400 White Castle restaurants, 445 of the 450 managers started as a cashier or a line cook, and worked their way up. If the primary duties test for a salary employee is narrowed based on strict percentages of time spent on managing, there will no longer be as many opportunities for lower-level employees to get managerial experience necessary for this advancement process. This is because a strict definition of primary duties will no longer afford many managers the flexibility to lead from the front and help out with non-managerial duties as needed. Employers will be forced to choose between classifying a worker as strictly management, and strictly hourly, which will in turn, reduce the amount of managers it can hire. It will also reduce opportunities for workers who depend on the ability to work outside the office to promote flexibility, because they will now fall under strictly hourly regulations, and out-of-office work is hard to measure on an hourly basis.

Contrary to Mr. Harris’ suggestion that these overtime changes would result in additional hours for many workers, Mr. Richardson and another human resources professional on the panel testified that- a reduction of salaried positions will also lead to reduced hours, reduced pay, and a feeling of demotion by these formerly salaried employees.  In addition, Mr. Richardson noted an Oxford University study on the effects of an increased salary exemption, which found that an increase to a salary exemption limit of $808 per week, would affect 1.7 million restaurant workers, and would cost business owners $5.2 billion per year. These increased costs will have a negative impact on raises, health benefits, and generous leave policies.

Leonard Court, a member of the U.S. Chamber of Commerce’s Labor Relations Committee, testified about how unfair DOL enforcement techniques create a negative environment for businesses. He cited numerous examples about how Wage and Hours Division investigators have been using a variety of “questionable” tactics to pressure business owners and human resources professionals into unfair and possibly unjustified settlements. Mr. Court also expressed concerns that the DOL needs to release more administrative interpretations of existing law, in order to give businesses more guidance on how to effectively comply with a complex web of regulations.

Among other issues, the three most concerning tactics employed by the DOL were: deliberately pressuring businesses not to use legal counsel, compelling immediate settlements by threatening litigation, and using bait and switch techniques to grab double punitive damages for new cases by using settled ones as admissions of guilt. These tactics result in an enforcement environment that, in the words of Mr. Court, has shifted from an approach of “cooperation and education to one of confrontation and coerced settlement.” Mr. Court cited one case that demonstrates this attitude, where despite months of investigation and six figures of legal fees, the WHD found no wrongdoing by the employer. The tactics and methods of the DOL are even more concerning in light of the Obama Administration’s authorization of expansive funding for franchise-specific Wage and Hour Division investigators.

The final version of these regulations is expected to be released soon, and it appears the potential changes are already creating uncertainty for businesses. As witnesses like Mr. Court and Ms. Berberich, a member of the Society of Human Resource Management observed, more helpful changes the DOL could make include adding clarity to the laws through opinion letters, and by promoting flexibility for the new generation of tech-savvy workers. Written transcripts of witness testimony can be found here, and the video of the full hearing is available here.

Franchisee Leads Breakout Session on Disaster Response at U.S. Chamber of Commerce Foundations, 2013 Corporate Responsibility Conference

This week, the U.S. Chamber of Commerce Foundation hosted its Business Civic Leadership Center (BCLC) 2013 Corporate Responsibility Conference, effectively themed The Network Effect: How Business Drives Progress. It was an opportunity for businesses and leaders of corporate responsibility to convene around a variety of issues including energy and water use, woman’s economic empowerment, nutrition, and disaster resiliency.

Mitch Cohen, Franchisee, Dunkin’ Donuts & Baskin-Robbins, and April Schrenker, Manager, The Dunkin’ Donuts & Baskin Robbins Community Foundation, participated in the Tapping Into Community During Disaster Response, Breakout Session. Here, they led a discussion on Corporate Social Responsibility (CSR), and how Dunkin’ Brands’ Community Foundation has grown and operated since its launch after Hurricane Katrina. The Community Foundation provided disaster recovery efforts and donations to the affected victims and areas impacted by Hurricane Katrina. Seven years later, The Community Foundation has evolved into a grassroots campaign with a focus on mobilizing disaster response efforts through Dunkin’ Donuts & Baskin-Robbins’ community based franchise locations nationwide.

Best practices and constructive ideas were shared among business owners, and spokesmen and women from relief agencies like American Red Cross and the Federal Emergency Management Agency (FEMA), aligning with the central point of the session, “One of the best sources of information on how to help disaster impacted community is by having employees on the ground. Whether it is a franchise owner or store manager, businesses can make smarter decisions and determine how best to help by leveraging their on-the-ground network.”

Cohen, franchise owner and operator of 13 Dunkin’ locations, is also Co-Chair of the Community Foundation, which has built a framework that allows the Dunkin’ Brands family to give back to those who help them every day in their communities. When speaking of the Foundation’s recent efforts after Hurricane Sandy, Cohen described how the Foundation likes to base decisions, not just on the ‘here and now’, but on effective response and recovery efforts that, “make a difference six, eight, and twelve months down the road.”

“Establish a mission with whom you’re giving to, and what for. Set expectations and guiding pillars that allow you to define certain criteria and expectations” added Cohen, when speaking of who to give to and for what reasons. The Foundation partners with national nonprofit organizations, in addition to regional and local level franchisees to support three critical issue areas, children’s health, hunger and safety. Since 2006, the Foundation has donated more than $4.4 million to organizations serving their neighborhoods.

Click here to view the 2013 Corporate Responsibility Conference online agenda.

Missed the IFA Financial Summit? Relive it with the WSJ’s live blog coverage


Link: Missed the IFA Financial Summit? Relive it with the WSJ’s live blog coverage

The first panel at the IFA’s Financial Summit was live-blogged over at the Wall Street Journal’s Small Business page, so if you missed any of the lively discussion about the biggest challenge facing franchise businesses in 2012 – credit access – head on over and read this recap. In addition to the WSJ’s Small Business reporter Emily Maltby, the panel featured IFA President & CEO Steve Caldeira, IFA Credit Access Task Force Chairman Bill Hall (a Dairy Queen franchisee), Ron Feldman, CEO of Franchise America Finance, Mary Jo Larson, Publisher, Franchise Times; and Darrell Johnson, President & CEO, FRANdata.

The panel was a preview of IFA’s second Small Business Lending Summit, which will be held in Washington on April 17. While lending has loosened somewhat in 2012, the franchise industry is still not back to where it was in terms of growth rates before the recession, so stay-tuned for more action in the coming months about steps the IFA is taking with its partners in the Small Business Lending Campaign to spur franchise small business lending. 

Posted by Matt Haller, IFA Sr. Director of Communications

As Congress finally wrapped its back-and-forth debate last week about how long to extend the payr

As Congress finally wrapped its back-and-forth debate last week about how long to extend the payroll tax holiday (ultimately agreeing to a short, two-month extension with a promise to re-visit the issue in a conference committee in January, IFA President & CEO Steve Caldeira joined FOX News America Live Dec. 23 to discuss the outlook for franchise businesses in 2012. “Franchising remains a bright light in a still challenging public policy environment, but we are still nowhere near the growth rates experienced before the election” Caldeira said. 

Franchises are projected to add 168,000 new jobs and 14,000 new establishments in 2012 according to IFA’s 2012 Economic Outlook for Franchised Businesses prepared by IHS Global Insight, Caldeira told FOX’s Heather Childers. Yet they still face a host of other issues that are keeping growth rates below pre-recession levels, including the health care law’s employer mandate, uncertainty about tax rates and the continued difficulty accessing credit.

“The health care law continues to loom as a disincentive to job creation, particularly for multi-unit operators due to the employer mandate and 50 employee threshold for paying a penalty,” he told FOX’s Heather Childers. “Franchise small businesses need comprehensive tax reform that lowers the corporate and individual rates and provide certainty beyond 2012,” Caldeira said. 

Posted by Matt Haller, IFA Sr. Director of Communications

IFA partners with The UPS Store, SBA Administrator Mills, Mass. Lt. Gov. Murray to support veterans


On Veterans Day, IFA President & CEO Steve Caldeira joined SBA Administrator Karen Mills, Massachusetts Lt. Governor Tim Murray and Stuart Mathis, President of The UPS Store ® to announce a partnership to help veterans own franchise small businesses at a The UPS Store ® location owned by Jamie Salisbury, a veteran small business owner.

Steve Caldeira, IFA President and CEO alongside SBA Administrator Karen Mills and Mass. Lt. Governor Tim Murray at a The UPS Store ® in Boston.

The event followed The First Lady Michelle Obama’s announcement Nov. 10 that the franchise industry committed to hire or recruit 80,000 veterans as employees or small business owners by 2014, including 5,000 Wounded Warriors, as part of the IFA’s Operation Enduring Opportunity campaign.

“We are very pleased to partner with the SBA and Administrator Mills for this important initiative,” said IFA President & CEO Steve Caldeira at the event. “The SBA has been a lifeline to small businesses during the economic downturn, and with tens of thousands of service men and women returning home, increased opportunities for employment and small business ownership are critical to help veterans who served our country.”

The visit included veterans who have found career stability and success in franchising. According to a recent study based on U.S. Census data, there are more than 66,000 veteran-owned franchise establishments in the United States, providing jobs directly for 815,000 Americans, many through the IFA’s VetFran program, originally established in 1991, and subsequently re-vamped after 9/11. Responding now to veteran unemployment rates of 11.5 percent (22 percent for veterans under 25 years old), IFA is launching Operation Enduring Opportunity to offer returning veterans career paths in franchising including employment and ownership on a broader scale.  


SBA Administrator Karen Mills, Steve Caldeira, IFA President and CEO, Massachusetts Lt. Governor Tim Murray, and Stuart Mathis, President of The UPS Store ® visit with Captain Jamie Salisbury, a UPS Store Franchisee, and U.S. Army Veteran in Boston on Veterans Day. 

“We often speak about the sacred trust we have with our service men and women, and one way we honor that trust is ensuring they have every possible opportunity for success,” said SBA Administrator Karen Mills. “On this patriotic day, it is only natural for us to reflect on our nation’s veterans who have the leadership skills and experience to become successful entrepreneurs and small business owners. The impact of this initiative will mean veterans and their families will get the chance to pursue their dreams as entrepreneurs and create jobs to drive economic growth at a critical time for our country.” 

Jamie Salisbury, a The UPS Store franchisee, served in the Army for three years—in Colorado, South Korea and Fort Devens and secured his first loan to open a The UPS Store franchise through the SBA. Today, he owns four The UPS Store locations in the greater Boston area.

The UPS Store ® has a long history of veteran support. Approximately 150 The UPS Store locations have opened under the VetFran program, a total financial incentive valued at more than $700,000.

On Nov. 9, The UPS Store ® announced new financial incentives, valued at approximately $300,000, to help up to 10 qualified U.S. military veterans open their own locations as part of a national initiative unveiled by the White House.

“We are extremely proud of our franchisees, especially those who are military veterans,” Mathis said. “Veteran unemployment rates of 11.7 percent – 22 percent for veterans under 25 years-old – are undeserved among the men and women who have honorably served to help keep our nation free.”

Posted by Matt Haller, IFA Sr. Director of Communications