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Log In / Register | May 22, 2018

IFA Leaders Warn that NLRB Could Harm Franchising

WASHINGTON – Robert Cresanti, CEO and president of the 56-year-old International Franchise Association, talks about how he thinks a potential U.S. National Labor Relations Board ruling against McDonald's could be detrimental to franchising. Joining Cresanti is Matt Haller, IFA senior vice president of media relations and public affairs and Jeff Hanscom, IFA director of state and government relations and public policy.

Cresanti was appointed at the end of September 2015 to head up the IFA after ex-CEO Steve Caldeira's employment contract was not renewed. The new CEO had joined the International Franchise Association in 2014 from SAP America Inc., where he had been vice president of corporate affairs and government relations since 2009. He had also served in government as Under Secretary of Technology and Chief Privacy Officer at the U.S. Department of Commerce, promoting American technology around the world. In his nearly decade-long service on Capitol Hill, he was a Committee Chief of Staff in the Senate and a Legislative Counsel in the House, where he handled legislation before the Banking, Judiciary, Commerce, Government Affairs and Finance Committees.

This is the final part of  the interview that Blue MauMau had in May with IFA leaders at the organization's Legal Symposium in Washington, D.C.

DON SNIEGOWSKI: The IFA made a deal with the Coalition of Franchisee Associations to stop opposing California's fair franchise bill, Assembly Bill 525, which was shortly after signed into law by Governor Jerry Brown. As part of that deal, my understanding is that the IFA agreed to stay away from California for a year or so. But yesterday you mentioned to those attending the Legal Symposium that you have been involved in two current California franchise bills [AB 2637, which exempts a franchisor from having to update its disclosure document when it negotiates specifics with individual franchisees that vary from its standard franchise agreement, and AB1782, which allows out-of-state franchisors to market franchises at trade expos in California without being registered in the state, although they must still register if a franchisor wants to sell an actual franchise in California]. What's happening?

JEFF HANSCOM, director of state and government relations and public policy for the IFA: The agreement was in respect to the bill that ultimately became the law, AB525. Certainly, if there were another [franchise] relationship law, we would get involved. We thought AB525 was positive in that environment that we were going to get for franchisees.

ROBERT CRESANTI, IFA chief executive officer: The answer is that we are involved in every state at every level. We've never stepped back or said that we are going to take time out for a period.

We have not tried to move anything affirmative other than positive bills for everybody.

We are supportive of the two pieces in California – the exemption bill [AB 2637] and the other one, the expos bill [AB 1782]. We've been involved in this since the beginning of the year.

The more bills we can find like that the more bills that we should be involved with, where we can actually move the ball. It is the question that I ask all the time – What's the problem you have? What's the problem that is keeping your business from moving in the right direction? I can solve some problems but I cannot solve all problems. If there is a really big issue that is brewing out there of some sort, we have to know about it. If we don't know about it, it is harder for us to hear and I know this is not going to sound good but it is harder for us to hear when someone is screaming at us than someone just talking with us across the table. Some people communicate at different decibel levels. We are trying to metabolize and understand what the concerns are.

We want to try to go after them as best we can with appreciation and the engaging of the board.

MATT HALLER, IFA senior vice president of media relations and public affairs: I also don't think we are naïve about the SEIU [Service Employees International Union] and their involvement with the franchisee relations issue in California and what they are trying to accomplish. They want to use these bills to drive a wedge between franchisor and franchisee, the local owner and the brand to marry an existing amount of attention. They are trying to exploit that.

CRESANTI: Right. Here's the thing. This is what I say to Democratic lawmakers who have been standing by the sidelines. The SEIU and the trade unions can unionize any business that they have the capacity to get a vote in. They've changed all of the rules on how you can get a vote [to unionize] against a business owner to the maximum extent possible, farther than you could even imagine when card check was on the table. That's not enough. They want systemwide unionization. As one of the SEIU representatives said, "I am not quitting until I sit across the table from Ronald McDonald himself to negotiate for every employee in this country."

A lot of legislators who are misinformed on this topic believe that we are trying to stop the unionization of franchises. That is not the case.

Just as always, workers have had the right to unionize any franchise where they can get the vote. What happens so often in those franchises is that you have a manager and an owner. But the people on the ground say what possible benefit could I have from unions. I'm not interested in it. That is frustrating to unions. They do not want to do piecemeal retail unionization [unionizing one store at a time]. Rather, they want to do wholesale unionization. They are throwing these small business owners in the same category as Bethlehem Steel once was, or Ford Motor. We once had a vibrant car industry at one point. Chevy, fill in the blank here…

They are putting franchises into that category, and franchisees don't have the tools to fight back. They do not have a human resources manager to turn to. They don't have a labor council to talk to…

SNIEGOWSKI: No. The franchise owner would pick up the phone and call their franchisor, the brand, for answers on labor union issues…

CRESANTI: You know what the brand has to do now that there is a joint-employer push? Let me connect you to – no, I can't do that. I can't help you with this and then the franchisor would hang up the phone.

They [the franchisee] better do that for themselves because now they'll [the franchisor will] end up in a joint-employer position. It means from a technical perspective for us [the IFA] that we have to provide a lot more tools.

HALLER: This is a void that the IFA can fill. This is an opportunity that gets back to the overtime law. This is the first major clear line labor issue that franchisees largely don't know about yet. They will probably be picking up their phone and calling their franchisor and asking, "How do I deal with this?" We [the IFA] know where the line is. But the problem with joint-employer is that it is a jagged line.

Robert Cresanti, CEO of the International Franchise Association
Robert Cresanti (photo/sniegowski)

CRESANTI: It is not even a jagged line because if we knew where the jagged line is, we could do something. We met with Richard Griffith [General Counsel of the National Labor Relations Board], I said to him: "We are in the business of complying with the law. We may disagree with you and we may try to change things…"

SNIEGOWSKI: Right now, the NLRB is in the deliberation stage and so we [the franchise industry] cannot yet know where the boundaries are. That uncertainty may bring fear, but once the ruling is settled months or years from now, the parameters of what franchisors cannot do with franchisees and their employees will be known, right?

CRESANTI: You [the NLRB] put me [a franchisor] on a one-acre lot and you bury a land mine somewhere in there. You are perfectly willing to say where you want me to go, but my first step may be on that landmine. Nobody knows. The NLRB representative said that the line of demarcation will get clearer as more and more lawsuits happen.

He kept saying, I don't want to talk about McDonald's. And I kept saying, I don't want to talk about McDonald's either. Let's talk about a 17-unit franchisor with 17 franchisees that are under investigation. Because he [the NLRB representative] said, "60 percent of cases never amount to anything. They just get dismissed for spurious claims." I said, "Let me tell you, here's the problem. When you are a little guy, you have 17 units and you have been in business for four years, when two of your units are suddenly investigated, you are talking about hundreds of thousands of dollars in legal bills because you are now working against the National Labor Relations Board. You [the little franchisor] have to handle investigations, paperwork, provide responses and wait for them [the government] to respond.

In this particular case, the franchisor and I were alone. For the franchisor, it will likely take three or four years of profitability that they had off the table. They felt like someone had shot at them and they had lived. I asked the franchisor if they could come and speak at our conference. And they replied, "We never want to breathe another thing about this again. We just want to crawl away and disappear because we are in that situation." The insurance companies didn't cover this for the franchisor because it is not his employees that are causing the problem. [It was the franchisee's employees.]

There is a lack of transparency [with an eventual NLRB ruling on McDonald's] for even the most sophisticated lawyers. If you went to every one of these [lawyers] who are attending the [Legal Symposium] conference today and asked, "I need you to give me a battle plan for my franchise system on what shall I do or not do from now on to be on the right side of the law," everyone here would probably do a yeoman's job to try to put things together for you. They would have to say, "Hey, this is my best wag, you know, wild guess on what to do. I have studied it. There is not a lot of case law yet."

Somewhere there is a landmine in this field that I hope we don't find.


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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.