Hundreds of small business owners flocked to Capitol Hill on Wednesday urging lawmakers to address labor regulations that could disrupt nearly 800,000 businesses.
The 350 entrepreneurs represented a diverse slice of the U.S. economy, including plumbers, yogurt storeowners, and automotive repairmen. The only common denominator between them was their affiliation with franchising—the system in which entrepreneurs pay corporations to operate under their brand while taking independent control of day-to-day operations and local profits.
They say they are fighting for their financial survival.
"We’re fighting against people who want to destroy the franchise model," Houston franchise owner Doc Cohen said. "We’ll lose the ability to create jobs."
Cohen has been in the business for 35 years. A pharmacist by training, he borrowed money from his brother-in-law to start his own enterprise and grew the business into 30 pretzel, cookie, and TCBY yogurt franchises. Most of his employees were high school kids looking to earn gas money before going to college. Some stayed; they became managers. His Chief Operating Officer washed cookie pans as an 18 year old. That was one of the things he liked about franchising.
"My employees know me. We’re like family. It’s not like corporate work where you’re anonymous," Cohen said.
The future of the franchising lies in the hands of the National Labor Relations Board, a federal labor arbiter that oversees union elections and workplace disputes.
The board will soon decide whether corporate parents can be held liable for the actions of its franchisees or contractors. Franchisees are uncertain of the future, especially after NLRB General Counsel Richard Griffin, a former union attorney, ruled that McDonald’s could be jointly liable for the actions of franchise owners.
Len MacPhee, a Denver-based attorney at Perkins Cole, said that doing away with franchising would "change the game" within the American economy. The NLRB, he said, is in effect crafting legislation through regulation. Unlike congressional or state action, NLRB policy will go into effect immediately, giving unions access to the corporate bargaining table and allowing them to organize thousands of stores at a time, rather than piecemeal.
Corporate parents would begin to exercise direct control over franchises to avoid headaches and could eventually cut out the small business owners and contractors entirely in order to avoid litigation threats at the local level, according to MacPhee.
"There will be a ripple effect and [union] plaintiffs will use that for a seat at the table," he said.
That ripple effect will extend far beyond the fast food industry. There are more than 770,000 franchisees in the country, producing nearly $500 billion and supporting 17 million jobs, according to the IFA. All of that could be on the line if the NLRB overturns existing liability precedent.
Franchise businesses are losing the public relations battle. President Barack Obama has made a $10.10 minimum wage a rallying cry during a sluggish second term. The SEIU and other labor groups have reduced the battle over franchising to the fast food industry where low wages and entry-level positions abound. The media has advanced those narratives in congress and the public consciousness. So Matthew Haller, spokesman for the International Franchise Association (IFA), has his work cut out for him.
"They are victims of their own success," Haller says. "They have perfected brand uniformity over 50 years, so it’s hard for consumers to differentiate between franchisees. They don’t realize that these are totally separate businesses."
The Capitol Hill day was designed to remind lawmakers that most franchise owners are small business owners, rather than the corporate one-percenters that have been demonized and picketed by labor front groups. A 2012 Franchise Business Review survey of 4,000 franchise owners found that more than 50 percent earned less than $50,000 in 2011—less than the median U.S. income on the year—while one in three owners earned less than $25,000.
Despite these slim margins, the debate has been reduced to apples-and-oranges comparisons of corporate profits, which are derived from the licensing fees franchise owners pay to parent companies and the earnings of franchise employees.
IFA set up about 200 meetings with members of Congress on Wednesday. Franchise owners from all 50 states met with members of their congressional delegations to discuss the fallout from regulating the business model out of existence. Five Texas franchisees crammed into Waco Rep. Bill Flores’ office in the Longworth House Office Building to ask the congressman for his support.
Mark Liston, president of the Dwyer Group, which controls franchising for service industry companies like Glass Doctor and Mr. Rooter, asked the congressman to sign onto a letter asking for increased transparency at the NLRB. Liston has been in touch with his franchisees about the NLRB and what direct corporate control would do to the business.
"If franchisees feel that Big Brother is watching their every move, they will get out of the business," Liston said.
Flores listened to his five constituents, growing more animated in agreement as they spoke. The unions and their supporters in the administration, he said, have been blinded by their faith in regulation.
"They don’t realize that at the end of the day they’re hurting their own boys, hurting businesses and future employment," he said. "They’re going to end up crushing themselves and killing the golden goose."
Flores told the group he appreciated their attendance, expressed his support for Sen. Lamar Alexander’s bill to balance the 5-member board by adding an additional Republican to the mix. He said he’s in favor of "any bill that will break the NLRB chokehold." Such legislation, however, is unlikely to pass any time soon. There is only one solution, according to Flores.
"The best thing we could do is change control in the Senate," he said.