Matt Haller, president and CEO of the IFA shares his views on the effect of various legislative issues facing the franchising industry.
It’s been almost a year and a half since COVID-19 first upended our business model, world, and ways of life. Sadly, the headlines and tolls are all too familiar at this point. Over four million people lost worldwide, alongside a global economic crisis of a scale unseen since the Great Depression. In the American franchise sector alone, roughly 20,000 franchises shuttered forever, eliminating over 900,000 jobs. And that’s just in the U.S.; one need only to look at any high street in Europe or Asia to see the lasting scars of the past 18 months and even the following wounds to come.
“In the American franchise sector alone, roughly 20,000 franchises shuttered forever, eliminating over 900,000 jobs”
With that as the backdrop, we arrive at the current view from Washington: our industry has reached a crossroads. Franchising in the United States faces two paths that will ultimately determine whether our business model will be drastically regulated and distorted beyond recognition, or whether if – empowered and supported by policymakers – it can continue to serve as an engine of inclusive opportunity, equalizing prosperity and equitable recovery.
Legislative challenges
Unfortunately, developments in Washington would suggest the first path might indeed win out. As a result, franchise businesses and brands now face a challenging and charged regulatory environment across multiple levels.
Federally, the Protecting the Right to Organize or PRO Act is currently awaiting action in the U.S. Senate, having passed the U.S. House of Representatives earlier this year. Put simply: the PRO Act embodies the most severe threat to the franchise business model in decades. The bill contains two provisions that would significantly impact franchise operations: an expanded joint employer standard reminiscent of 2015 and a worker classification law grafted from a notoriously failed law in California known as “AB5.” Both of these clauses taken separately from the bill could be enough to reclassify franchisees as employees of their brand companies; together, they pose a significant risk to any franchisor or franchisee operating in the U.S.
“Put simply: the PRO Act embodies the most severe threat to the franchise business model in decades”
While the PRO Act remains in limbo in the Senate, the bill has other incarnations and methods of becoming law that opponents of franchising continue to exploit. Sen. Bernie Sanders (I-VT), Chair of the powerful Senate Budget Committee, already announced last week that his committee’s proposed budget package would include passage of the bill as a component of the broader measure. It remains to be seen whether this could garner enough support for passage. And while the compromise infrastructure package tentatively agreed to by President Biden, Senate Democrats, and Senate Republicans does not include the PRO Act, President Biden’s earlier American Jobs Plan did. Lastly, and as anyone in Washington will tell you, there remains a multitude of other legislative vehicles proponents of the PRO Act could attempt to commandeer to bury it 500 pages into a spending package.
Department of Labor appointment
And that’s just on the legislative front. What’s more potent than a subclause concealed 500 pages into a several-thousand-page spending package? A bureaucrat appointed to a little-known position in a lesser-known federal agency overseeing all U.S. labor law. This week, the Senate Committee on Health, Education, Labor, and Pensions (HELP) will vote on the nomination of David Weil to serve as Wage & Hour Administrator at the Department of Labor (DOL). The International Franchise Association (IFA) and 13 other trade groups have urged the Senate to reject Mr. Weil’s nomination given his extensive academic and professional record of touting unjust and economically unfounded criticisms of franchising.
Light at the end of the tunnel
However, it’s not all doom and gloom. If the last 18 months taught us anything, it’s the resiliency of our industry and the people who comprise it. Every day, franchise owners and executives make their voices heard with their elected officials, explaining how the PRO Act would impact their businesses or how David Weil’s previous policies hurt their bottom lines. All told, over 8,000 franchise advocates have sent emails and letters to their lawmakers through IFA’s grassroots Franchise Action Network.
“However, it’s not all doom and gloom. If the last 18 months taught us anything, it’s the resiliency of our industry and the people who comprise it”
Furthermore, the last 18 months also demonstrated the enormous potential of what can happen when the public and private sectors cooperate and collaborate. For example, critical emergency measures from the U.S. government like the Paycheck Protection Program (PPP) saved over 20,000 franchises and impacted some 2.5 million franchise jobs. And President Biden’s American Rescue Plan created a $28.6 billion emergency Restaurant Revitalization Fund eligible to franchise restaurants; sector-specific relief mechanisms for gyms and hotels are currently under negotiations.
This is the latter path: a recovery fuelled by franchises and made possible through sound and sensible policymaking that helps our industry does what it does best: build back better. For immigrants, people of color, women, and other groups that continue to face systemic disadvantages and roadblocks to accessing capital, property, and other mechanisms of wealth creation, franchising provides an incredibly inclusive opportunity. Franchising offers anyone, regardless of their experience or background, the chance to own and operate their own business without assuming the enormous costs and risks of starting from scratch. In fact, according to the U.S. Census Bureau, there is a higher minority ownership rate among franchised businesses than non-franchised businesses: over 30 percent of franchises are owned by minorities, compared to less than 20 percent of non-franchised businesses.
“This is the latter path: a recovery fuelled by franchises and made possible through sound and sensible policymaking that helps our industry does what it does best: build back better”
Ultimately, the choice is ours. If we as an industry harness and unify our collective voices to educate the public and lawmakers; if we share every improbable and inconceivable success story we’ve set in motion; if we show how franchise businesses help create a more equitable and sustainable “normal,” we will weather this storm as we did the last. A lot can change in 18 months. So let’s change it for the better.
THE AUTHOR
Matthew Haller has been a key member of the IFA team for 10 years, building extensive relationships with all three segments of the IFA membership: franchisors, franchisees, and suppliers. During that time, he has held a number of roles including communications director, vice president of public affairs, chief of staff to the CEO, and senior vice president, public affairs.
