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Apr 21, 2017
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What do McDonald's, 7-Eleven, and Subway have in common? They're all franchisors that license franchises to small business people, who in turn employ countless Americans. But the federal government is endangering this hugely successful business model. Learn how in this short video.

This video is part of a collaborative business and economics project with Job Creators Network and Information Station. To learn more, visit informationstation.org.

By meddling with franchise laws, the NLRB is slamming the door on one of the proven paths to breaking into the business world.

  • The redefinition of the relationship between franchisees and their corporate partners by the National Labor Relations Board (NLRB) is slamming the door on one of the proven paths to breaking into the business world: local franchise ownership.View Source
  • The new rule will likely lead to far fewer new businesses by making national franchisors easier targets for labor lawsuits from local franchise employees, thus making them less likely to give inexperienced people a chance at opening a franchise.View Source
  • Increasing labor lawsuits in local establishments also increases costs for those local businesses.View Source
  • Related reading: The Economic Impact of Franchised Businesses – PricewaterhouseCoopersView Source
  • Related reading: Power and Privilege: Labor Unions in America – Morgan ReynoldsView Source
  • Related reading: Economics of Labor – Morgan ReynoldsView Source

Some of the most important job creators in America are franchise businesses. That’s why the NLRB’s new franchise rule is so dangerous.

  • In 2016, there were over 801,000 franchise businesses in the U.S., making up 2.3 percent of all nonfarm business establishments, and accounting for approximately 9 million jobs in the U.S. (5.6 percent of all nonfarm employment nationally). In 2016, franchised businesses contributed $541 billion to U.S. GDP, making up 3.4 percent of total GDP.View Source
  • The National Labor Relations Board (NLRB) is redefining the relationship between franchisees and their corporate partners (the franchisor) to make the bigger company responsible for complaints made by employees of the smaller companies.View Source
  • This action will likely lead to far fewer new businesses by making franchisors much more hesitant to give inexperienced people a chance at opening a franchise.View Source
  • The new rule makes national franchisors easier targets, incentivizing labor lawsuits in local establishments. Increasing labor lawsuits in local establishments also increases costs for those local businesses.View Source
  • Related reading: Power and Privilege: Labor Unions in America – Morgan ReynoldsView Source
  • Related reading: Economics of Labor – Morgan ReynoldsView Source

The unelected bureaucrats in the NRLB are expanding the scope of labor unions to the detriment of American businesses. 

  • The National Labor Relations Board (NLRB) is redefining the relationship between franchisees and their corporate partners (the franchisor) to make the bigger company responsible for complaints made by employees of the smaller companies.View Source
  • This action undermines the independent business model and would likely lead to far fewer new businesses by making franchisors much more hesitant to give inexperienced people a chance at opening a franchise.View Source
  • The new rule makes national franchisors easier targets, incentivizing labor lawsuits in local establishments. Increasing labor lawsuits in local establishments also increases costs for those local businesses.View Source
  • Related reading: The Economic Impact of Franchised Businesses – PricewaterhouseCoopersView Source
  • Related reading: Power and Privilege: Labor Unions in America – Morgan ReynoldsView Source
  • Related reading: Economics of Labor – Morgan ReynoldsView Source

The new NRLB franchise rule makes national franchisors easier targets for union lawsuits and increases costs to local businesses.

  • The new franchise rule implemented by the National Labor Relations Board (NRLB) makes national franchisors easier targets, incentivizing labor lawsuits in local establishments. Increasing labor lawsuits in local establishments also increases costs for those local businesses.View Source
  • The NLRB’s redefinition of the relationship between franchisors and franchisees makes the bigger company responsible for complaints made by employees of the smaller companies where they actually work.View Source
  • This action will likely lead to far fewer new businesses by making franchisors much more hesitant to give inexperienced people a chance at opening a franchise.View Source
  • Related reading: The Economic Impact of Franchised Businesses – PricewaterhouseCoopersView Source
  • Related reading: Power and Privilege: Labor Unions in America – Morgan ReynoldsView Source
  • Related reading: Economics of Labor – Morgan ReynoldsView Source

Government regulations and rules sometimes help level the playing field for businesses. But in other cases, unelected bureaucrats can hurt businesses that are creating jobs for you and me. New rules coming out of Washington may hurt franchised businesses.

When it comes to business ownership, you often hear the terms franchisee and franchisor. A franchisor is like Subway Sandwiches. They own the brand and license it to small business people who might own one or two stores. There are literally thousands of franchisors in many different industries.

Currently, if you want to open a franchised restaurant or retail store, you sign a deal with the franchisor (the company that owns the rights to the name, menu or products, and business model). The franchisee pays for those rights and agrees to maintain quality and follow certain standards.

However, the franchisee is a separate business that makes its own decisions on who to hire, how much to pay, and what benefits to offer. This system has worked really well, creating more than 770,000 small businesses and supporting more than 18 million direct and indirect American jobs. Importantly, minority franchisees make up 20% of those businesses often locating in minority communities and employing minorities in those communities.

Right now the National Labor Relations Board, a group of unelected bureaucrats, is trying to redefine the relationship between franchisees and their corporate partners (the franchisor). The idea is to make the bigger company and the smaller companies jointly liable for employee complaints and other legal issues.

If the National Labor Relations Board successfully redefines the relationship between franchisees and franchisors, there may be far fewer new businesses and the jobs they create… because franchisors will be much more hesitant to give inexperienced people a chance at opening a franchise. After all, why would they want to be in any relationship where they were responsible for thousands of decisions made by smaller companies every week. And franchisees didn't risk their life savings to open a business, only to find out they now essentially work for the franchisor.

Botton line: this new definition slams the door shut on one of the proven paths to break into the business world.

Make Sense?

Sometimes Washington needs to understand “if it’s not broken, don’t fix it.”

Now that makes sense.

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