NLRB rule puts Black-owned franchises at risk

The road to hell is truly paved with good intentions.  

A Nations Labor Relations Board rule which would classify large corporate franchisors as “co-owners” (with the locally-owned franchisees with whom they are contracted) seemed an easy way to expand labor protections into a wider area of the economy.
    
Instead, Rule § 103.40(a) threatens to put countless independently-owned franchises out of business, ending one of the most valuable parts of the economy for people of color to advance.  More African-American generational wealth has been created through the franchise model than any other business type.  According to the Census Bureau’s Annual Business Survey, more than 1 in 4 franchise businesses are owned by a person of color.  Moreover, Black franchise owners earn 2.4 times more than other minority-owned businesses, with 45 employees per outlet compared to an average of just 21 in non-franchise businesses.
    
The NLRB rule began with the noble goal of holding the corporate franchisor responsible as a “co-owner” if there was “evidence of reserved and indirect control” over employees’ essential terms and conditions of employment.  Put another way, the proposed joint-employer rule seeks to hold big brands accountable for all work conditions at their franchise locations.

In practice, the rule has had a chilling impact, effectively pausing many new franchise contracts and having some major corporate-franchisors consider ending the franchise model completely, in favor of corporately-owned stores, a fact that local McDonald’s franchisee and former president of the New Orleans Black Business Alliance, Henry Coaxum, considers a “certainty.”
      
Perhaps more frighteningly since the liability would be transferred to the corporate level, these burdens of employment law liability (being placed on franchisees) present the danger of turning independent business owners into little more than corporate employees. The fundamental wisdom of the franchise model where an ambitious entrepreneur works for himself, creating his own wealth and destiny for his family, could come to an end if the rule takes effect.  

The impact of the rule could extend to suppliers and independent contractors servicing the franchise outlet – but not even employed by them. As Kate Bradley, a labor law attorney with Foster Garvey observed, “The NLRB’s new joint employer rule will expand the standard for finding a joint employment relationship under the NLRA and will likely expose more employers to these potential joint employee responsibilities and liabilities. This new rule will have important consequences for employers, particularly those relying on commercial arrangements, such as staffing, agencies, contractors, and subcontractors and franchises.”
      
No corporate franchisor will accept this degree of legal liability without asserting complete control – and keeping the profits as a result.  Or they could choose to put the franchisee out of business altogether in favor of a corporately-owned outlet, a threat that our editors have heard all too often of late.
     
A rare bipartisan majority of both houses of Congress have sent legislation repealing the NLRB rule § 103.40(a) to President Biden, and the Oval Office currently debates whether to sign this repeal into law or let the current rule stand. Coaxum explained to The Louisiana Weekly that if the president refuses to sign the repeal of the rule, the choice might prove the death-knell of the franchise business model.
      
Coaxum, for many years one of the largest Black franchise owners of McDonald’s restaurants in the country (and still the owner of three outlets), has seen both sides of this debate. He spent 20 years as a corporate executive with McDonald’s before becoming a franchise-outlet owner and therefore understands better than most the devastating consequences of the rule.

“This [franchising] model gives me the independence to be my own boss…Too often we meddle with something that does not need fixing.  The beauty of being a franchisee is that you can work as hard or as easy as you want. The franchise business model has been the greatest source of entrepreneurship. When you think of being in business for yourself, that is the American way,” said Coaxum.
    
“I’m a Democrat,” Coaxum added, explaining that this is not some partisan campaign.  “The reality is this [rule] could put us out of business…If you are a minority and you are an entrepreneur, you had better be a good entrepreneur…We don’t need this.”
   
“I am not interested in being a corporate employee again,” he emphasized, saying that the co-ownership rule would drastically reduce the number of independent business owners and effectively make any who remain little more than a manager for large corporate interests.  Pay scales would be reduced as liability flows upward, in the vehicle that so many African Americans have used to create independence and generational wealth would disappear into a multiplicity of corporate-owned stores.  Effectively Black entrepreneurship in the franchise model “would die,” Coaxum warned.
     
He noted that nearly 1/3 of respondents in a recent survey said they would not own a business without franchising, and this would deny opportunities that benefited he and so many other minority entrepreneurs. He urged President Biden to sign HJ Res 98/HS Res. 49 before this chilling impact on future opportunities for African-American entrepreneurs.