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Jim Coen's picture

That is politely called Equity Extraction.

That is a different issure than joint employer.

Equity extraction is a polite way of saying extortion.

Dunkin' Brands took much of the ability to extract equity out of the franchise agreement, but they included it in the Lease Extention agreement with the support of the BAC. The key to removing that threat is for the franchisee to become the lanlord. Owning the dirt is the best investment a DD franchisee can make.

The CFA played a role but they have little to no resources, it took the union funded "Change to Win", to win in California. The only way the IFA would back down and accept this legislation was if someone stronger than them in California supported the legislation. SEIU, Commercial Foodworkers and the Teamster backed the legislation and funded a very serious lobbying effort. That is how you spell win in California.

Dunkin Brands joint employer?

Jim
What does consideration of Dunkin Brands' lease option agreement say about whether the franchisee is really a business owner? The lease option allows Dunkin Brands to default a franchisee and force him out of his own shop and take over the premises and all of the franchisee'so property without paying a cent.

(Except in California when the Small Business Protection Act finally passes this year, thanks to CFA)

Jim Coen's picture

Dunkin' Brands does not Act as a joint employer.

The NLRB ruled that Freshii is not a joint employer. One of the main reason's was that Freshii did not write the "Employee Hand Book" which McDonalds does and Dunkin’ Brands does not.

If you compare the Feshii decision to Dunkin's involvement with it is franchisees relating to the franchisees employees you will see clearly that Dunkin' Brands does not act as a joint employer similar to Freshii. 

Old rule, new incursions? Or new bar, old franchise practices?

Visitor: "Events are often coordinated (between franchisee and franchisor)..."

Franchisors have been arguing that the bar has changed. In contrast, you seem to argue that the bar has remained the same but joint coordination and practices have increased, becoming more intertwined and complex. The static law has been replaced by the reality that franchise systems and stores have become more and more coordinated between franchisor McDonald's and its franchisees.

I tend to think that the legal bar has actually changed and been updated by the NLRB rather than the argument that regulators are rushing to catch modern incursions of an old standard.

My arguement does NOT show MCD is a jt employer. Pigs fly

My argument is that NLRB doesn't understand, or does and doesn't care that it is wreaking havoc on the economy with a pipe dream of a socialist workers paradise where anyone who gets a paycheck can force a negotiation and eventual contract with a Fortune 100 CEO that has nothing to do with that worker.

Perhaps you should read the decision and then re-read my post. I hate this, and no, I amkj not available for hire.

As for the COSI CEO, it took a while for him to eventually start selling his franchises. The fact that he was both for even a day is problem under Browning Ferris.

As for shareholders not excerisinf controlm a vote is evidence under BF

My arguement does NOT show MCD is a jt employer. Pigs fly

My argument is that NLRB doesn't understand, or does and doesn't care that it is wreaking havoc on the economy with a pipe dream of a socialist workers paradise where anyone who gets a paycheck can force a negotiation and eventual contract with a Fortune 100 CEO that has nothing to do with that worker.

Perhaps you should read the decision and then re-read my post. I hate this, and no, I amkj not available for hire.

As for the COSI CEO, it took a while for him to eventually start selling his franchises. The fact that he was both for even a day is problem under Browning Ferris.

As for shareholders not excerisinf controlm a vote is evidence under BF

Freshii or Browning-Ferris?

Visitor: "I strongly suggest that you actually READ Browning-Ferris."

Which is more relevant, NLRB's ruling that franchisor Freshii was not a joint employer with its franchisees or NLRB's 3-2 ruling on non-franchisor Browning-Ferris' use of a temporary worker agency?

I fear I won't have enough time to read both before the McDonald's ruling comes out.

Pigs aren't flying for zee joint liability of a franchisor

"Franchisees also often (own) stock in publicly traded franchisors"

Owning McDonald's shares does not make one a joint employer. You haven't shown where McDonald's franchisees collectively would dictate the working conditions of McDonald's Corp. laborers.

COSI CEO sold his franchises

Visitor: "At Cosi, the biggest franchisee is the CEO of the franchisor."

Didn't he have to sell his franchises to COSI?

Huh? Your argument shows McD joint employer over stores

Visitor: "Franchise advisory councils, despite being called advisory, often collaborate closely with their franchisors on determining what their brand mandates are... Look at McDonalds OPNAD. They vote on everything."

Interesting. So you are arguing that franchisees are working collaboratively through advisory councils and franchisee cooperatives with McDonalds Corp. over the control of the working conditions of the franchised stores. You make a compelling argument that there may be collaboration and joint employer liability over the franchised stores.

Remind me not to hire you as my counsel. With friends like you pleading my case, who needs enemies?

Look! Up in the sky! Its a pig and it flies

Franchise advisory councils, despite being called advisory, often collaborate closely with their franchisors on determining what their brand mandates are and how they are measured by the franchisor's field reps, the forms that they use, how they can and cannot score, etc. That IS the manual. Franchisee councils in many systems basically set the job duties and working conditions for the lower level franchisor employees. Are they joint employers? Big franchisees essentially co-opt (and frequently later hire away) lower level franchisor employees and the employees often have to adjust their schedules to accomodate the franchisee's team when they need to do things. Events are often coordinated, especially marketing events where the franchisor employees are spending the franchisees' money on promotions that the franchisee's vote on. The franchisor employees are executing directives of the franchisee's who decide on the promotion or event.

This is a real problem if you are at all familiar with how franchise systems work in the day to day. Look at McDonalds OPNAD. They vote on everything.

Franchisees also often stock in publicly traded franchisors, so the top folks actually DO work for those franchisees. At Cosi, the biggest franchisee is the CEO of the franchisor. At Famous Dave's and others, big franchisees are on the board of directors. Big franchisees invest in funds that buy large blocks of franchisor stock.

All of these, and numerous other arrangements and investments, were made predicated on law that is based on reality, not a whimsical notion that the whole country needs to be in a union and it should be easy for unions to force that on people.

Up is down, Black is white. The NLRB just caused a huge mess.

I strongly suggest that you actually READ Browning-Ferris. It is a policy fantasy in search of a faxtual and legal basis it never finds. It is long and pedantic, so on the plus side there are lots of pages and can be used as an umbrella to shield you from flying pig p00p falling on your head.

When franchisees control franchisor executives, pigs will fly

Visitor: "So, are the franchiser's employees my employees now, too if we are found to be joint employers?"

No way. Joint employer control doesn't flow upwards right now. Your franchised company would have to control the employees of your franchisor to garner attention. Let us know when you, the franchisee, begin to write and issue employee manuals that Dunkin' franchisor executives must follow.

NLRB chaos. Are the Zor execs Zee employees of the Jt. Employer

I am a DD franchisee. So, are the franchiser's employees my employees now, too if we are found to be joint employers ?

Seriously, these goners haven't really thought this through in their mindless zeal to unionize the entire workforce at all costs.

Seid misunderstandings

Irrespective of how long in style he writes, there are two issues with Michael's logic. He is not an attorney, and is not familiar with government in general.

1. The Lanham Act (signed 1946, enacted 1947), the holy grail of franchisor side attorneys, has nothing to do with employment, the NLRB, or the so called 'joint employer" threat. The National Labor Relations Act was passed in 1935 and is separate law. If there are tussles between the two, the federal courts will sort it out.

2. The Browning Ferris decision is a second of a series of rulings regarding that contractor. It was a ruling by an federal administrative agency (NLRB), and its impact on federal litigation going forward is unknown.

The concept of vicarious liability is a common law concept that goes way back, that neither Mr. Seid nor the bellyaching management side attorneys can do anything about.

Jim Coen's picture

There shouldn't be sides! (no pun intended)

Michael,

Franchisee and franchisor are in it together, they share brand equity. There are no sides to brand value and equity in most successful franchise relationships.

We have not seen the write up on the McDonalds case nor the rationale for the NLRB decision. Until then, mine and your opinion is based on conjecture.

My observations regarding McDonalds are very different than yours. McDonalds is not a collaborative franchisor anymore. They have systematically changed the culture to one of top down management from the Ivory Tower in Oak Brook. Corporate has the franchisees on very short leashes (no automatic renewals and corporate is often the landlord). My guess is that McDonalds mandates as to franchisee and employee relations is a major part of the NLRB decision. Sales metrics and anyalzing labor costs is a P&L function that does not constitute a “joint employer” relationship on it is own.

Browning Ferris is not as interesting to me as the McDonalds case is. I am anxious to see the NLRB McDonalds summary, as I am sure you are too, I am open to continuing this conversation after the summary is released. 

Assumption

Jim

Thanks for your well reasoned reply. Let me take two statements you made – hopefully not too far out of context.

“If a regulation or policy and procedure reduces communication or collaboration between franchisees and franchisor, then it is not good for either party. Thus, it negatively affects brand value.”

“The NLRB “joint-employer” decision negatively affects brand value if the franchisor does not embrace the change and use it to be inclusive of franchisees in updating the franchise agreement or operations manual to accommodate the NLRB ruling.”

The Browning Ferris decision that came out yesterday is troublesome – likely more for its poor drafting and the fact it does not set any standard to let you truly discern where the boundaries are. This is based on a first and second read and I am certain, as any government written document is, it will become clearer over time. However, it is broad enough that it is clear that Wal-Mart and Costco and other large retailers and manufactures woke up to a major headache this morning.

I am a big proponent of communications and collaboration and that is one of the problems with the NLRB’s position. In the McD case the claim seems to be based on communication and collaboration. McD obtains information from its franchisee’s point of sale system and communicates it back with metrics and recommendations to improve franchisee performance. The NLRB’s position in making that as the central issue is the robustness of that communication tied to collaboratively developed metrics and advice as a trigger for joint employment. For some reason robust electronic communication, collaboration and data sharing is a trigger for joint-employment in that matter. The NLRB is therefore not in alignment with where you might think they are by your statement.

I am also a big fan of inclusiveness, but, that is another problem. How do you balance inclusiveness without triggering the claims of joint-employment based on the Browning Ferris opinion? You really can’t and the result is a greater distancing (less inclusion) or greater control (all less inclusion). I am trying to wrap my head around even the basic concept of collaboration with FACs and FAs in a way that does not trigger the issue based on BF. A clear reading of BF is that HR issues are likely not at the core of the trigger and other collaboration and communications likely are.

The NLRB has stepped into an interesting posture. As an administrative agency, they are actually overstepping their bounds by defining what are the requirements of brand protection as exercised since 1947 by the Lanham Act and enforced by a different agency of the government. In a more routinely run Congress and administration this would not be an issue because Congress would immediately step in and put a stop to their over reach on their authority. With this Congress and administration I doubt that will happen.

Bottom line is that between Browning Ferris and what seems to be going on with the McD cases, the three things you wish to happen – communication, collaboration and inclusiveness – are a few of the precise things that will need to change to avoid joint-employment and I seriously doubt you are going to be happy with the end results. I know I likely won’t be.

I imagine in the next few days or weeks there will be a lot of analysis done and articles written. Probably some of the first ones will be published on the IFA’s FAN web site. I don't imagine however that there will be many on the franchisee side that are going to be supportive of the NLRB’s position. The NLRB is certainly not taking a position that any franchisee should be supporting – although I give you credit for making your case.

Sied and About.com - You Rent Space

Congratulations on renting space on About.com.

Jim Coen's picture

Your Assumption is Incorrect.

Michael,

You stated in your comment, “I know you have a belief system that most any regulation that has a negative impact on franchisors by definition must be good for franchisees and that is certainly not true here.” My belief system is that the foundation of successful franchising is predicated on a mutually advantageous relationship between franchisees and franchisor. If a regulation or policy and procedure reduces communication or collaboration between franchisees and franchisor, then it is not good for either party. Thus, it negatively affects brand value.

The most important message in the MSA article is that any “joint-employer” regulations that the NLRB establishes will need to be mitigated. Franchisors need to review their policy and procedures with franchisees to remove overbearing mandates and discuss alternatives policy and procedure. It maybe that the franchisor and franchisees decide to avoid “joint-employer” designation or enter into another relationship similar to Chick Fil A that embraces a “joint-employer” arrangement.

Your statement that legislation/regulations impact franchisees more than the franchisor is indicitive of the difference between your belief system and mine. You mention your long time commitment to “brand standards”. My long time commitment is to “brand value”. In a mutually beneficial franchise relationship, the winner should always be brand value, which should be mutually shared by all stakeholders in the brand. It should not be franchisee vs. franchisor. Brand value is the culmination of efforts by all stakeholders.

A perfect example of increasing brand value is when Nigel Travis took over as CEO of Dunkin’ Brands. Jon Luther was a catalyst the 2006 sale of Dunkin Brands from Pernod to Bain, Carlyle, and Lee private eqiuty consortium for $2.2 Billon. In 2009, Nigel cleaned house removing Steve Caldeira, Stephen Horn, and many others including a dramatic reduction in Jon Luthers role. He changed the culture at Dunkin’ Brands from down your throat mandates and punative treatment of franchisees to a more collaborative culture where franchisees are treated as stakeholders. Fast forward to 2015 well after the public offering and the market capitalization of DNKN is almost $5 billion, a 100% increase in about five years.

From a Dunkin Donuts franchisee perspective, the value of their franchise also increased dramatically, maybe not as much as DNKN did, but significantly none the less. In 2009 existing Dunkin’ Donuts, franchises were fetching from $.75 to $1.00 per dollar of gross sales. Today that valuation is approximately $1.25 to $1.50 per dollar of total sales.

The NLRB “joint-employer” decision negatively affects brand value if the franchisor does not embrace the change and use it to be inclusive of franchisees in updating the franchise agreement or operations manual to accommodate the NLRB ruling.

Indeed as you agree the “joint employer” descision by the NLRB is not the end of franchising. It causes all of us, to pause, and evaluate the franchisee/franchisor relationship.

Ad Hominem Attack Doesn't Help

The unsigned reply is unfortunate. If the writer has a substantive disagreement with Michael Seid, then fine: say so and lay out the logic of your argument for everyone to read and consider. A personal attack doesn't advance anyone's understanding of the issues or any facts.

Mr. Seid took the time to lay out a thoughtful explanation of his view on an important subject; that deserves respect even if you disagree with the merits of his argument. We can and should all do better than ad hominem attacks.

Lee Plave
Plave Koch PLC

Long responses are telling

Once again, long responses are telling, especially from this writer. He always does it.

It is notable that he says "he and Steve Caldeira are in complete alignment--twice. What's the problem here?

Mike is a former hairdresser and chow hall NCO and cannot possibly predict the impact of "joint employer".

Respectfully - You are wrong!

Jim

I appreciate the plug for the about.com franchising portal that we manage as the franchising experts for About.com. I also appreciate your ascribing the article to me. I did not write it. As noted in its header, it was written by the head of our operations manual and training practice, Marla Rosner. I did read it in advance of publication and agree with her position as it deals with manuals and training.

If you would like my opinion on the NLRB issue (given the Browning Ferris opinion came out today that might be useful) I wrote a few articles on the subject also published at franchises.about.com. One is a two-part article and once I further digest the BF opinion from today, I will likely write a follow up article. There are also several presentations I have made at the IFA and NRA and elsewhere on the subject and you likely can find them on line somewhere. I also have an article in the special edition of Franchising World that just came out. My position and Steve’s are fairly close – if not identical. We may language the message differently, but the messages can be interchanged.

I am an optimist and I am rarely in the camp of any legislative act ending the world. Franchising as most things in business are resilient and what concerns me the most are that some of the changes that really will need to be made in franchising because legislation generally impact the franchisee negatively more that the franchisor and that is not good for any franchise system. Steve Caldeira and I are very much in alignment regarding the potential damage of the NLRB’s joint-employment position to franchising and most assuredly to franchisees. There is not a lot of room for light to pass between me Steve and the message coming from the IFA’s staff to be very honest.

MSA philosophically has always focused more on brand standards in how we structure a franchise and how we work to improve the performance of established franchise systems. Its one of the ways we have built our reputation in improving franchisor performance and franchise relations. The glass example, while simple and crude is pretty much on point. Where processes and steps need to be followed precisely I of course include those elements in our client approach. But for other elements I first look to see what the brand standard is and then figure out if it is at the level of requiring processes or does it fall better into the category of support by the franchisor to enable franchisees to achieve brand standards without the control elements some franchisors include. That is the message Marla was conveying in her article and others she has recently written on the subject.

Marla is simply addressing one element of the issue and is staying quite firmly in a philosophical approach to franchise management we have been advocating and working on with our clients for decades and certainly long before NLRB was an issue. But it is the low hanging fruit of the issue and the changes to systems will need to be greater in other areas.

The NLRB decision in Browning Ferris, assuming it applies to franchising, will create serious risk for franchisors also. In some areas like training, franchisors will certainly achieve brand standards and likely can reduce risk by pushing local training and some other elements to the local franchisee level and focus more on brand compliance. That is a shift for some franchisors but it is what MSA has been advocating for a long time so I am comfortable with using the NLRB as a reason to get some clients to make the change.

But since the NRLB is going to focus on creating risk for franchisors, and in this case the risk is on HR practices, controls will not be lessened. Instead, I would expect them to be significantly increased. They have to. This will be advanced by folks like me, lawyers and I assume the insurance industry who will need to insure against this type of risk. The necessary reaction will be a significant lessening of the independent day-to-day management of the franchisee’s business if the franchisor is a joint-employer. If the franchisor now needs to negotiate union contracts for the franchisees, that is going to dig into hours worked, scheduling, pay scale, labor practices, vacation pay, etc. etc. etc. Joint employment is also going to impact vicarious liability and other important risk areas that are in the weeds and most article don't address them but we (and I am including the IFA folks) discuss them regularly in looking at the issues and possible solutions - if any. But lets remember that we don't know what the NLRB standard as it relates to franchising will be, we are only making logical assumptions.

I expect, that the larger or better capitalized franchisors will look differently at renewals and may opt for more company owned expansion. Emerging or new franchisors will need to structure their offerings differently and there may be fewer new offerings. Some franchisors will of course not be able or willing to adjust and they and their franchisees will suffer because of the impact of the NLRB’s joint employment position. There will be a focus on mitigating risk and I would expect newer contracts will have more control provisions built into them – not less. With risk and added responsibility comes cost, so expect some of the fees increase and possibly new fees created.

I know you have a belief system that most any regulation that has a negative impact on franchisors by definition must be good for franchisees and that is certainly not true here. Franchisors will have more options in mitigating the risks they can impact and franchisees will be burdened in a way they can’t possibly wish for if NLRB becomes the standard. If you don't like your field consultant or information coming from the franchisor’s headquarters, as a son and nephew of a long line of union organizers and as a union member myself (I am member of a writers guild and I picket my office at least once a year for making me work too hard (-:) I can assure you a union shop is not what franchisees will want. The franchisor is in alignment with the franchisee in most ways (we might argue the point as I know you will want to challenge me on this) but there is zero argument that the franchisee has absolutely no alignment with SEIU.

Bottom line. Steve and I and the rest of the IFA team are in very deep alignment. As an experienced consultant I and others will look for ways to mitigate damage, if it is possible. I don't see right now any way to mitigate the damage to franchisees including the loss of independence or the impact on their equity caused by the NLRB’s joint employment position.

You always seem to have a belief system that the enemy of my enemy is my friend and if it comes from the IFA it must be wrong for franchisees. It does not hold here for sure and it rarely ever does. I would recommend that franchisees join the IFA’s Franchise Action Network and get involved in helping the association deal with this issue. There is a lot of information on FAN on the IFA’s web site at http://www.franchise.org/franchise-action-network.

Michael Seid
Managing Director
MSA Worldwide