New Report Shows Expected Consequences of Proposed Joint Employer Rule on Franchised Businesses

Ahead of the NLRB’s forthcoming joint employer rule, survey conducted in partnership with Oxford Economics shows significant concerns among franchisees with broadened joint employment standard, decreasing access to business ownership, causing disruptions to the franchise relationship, and increasing costs

WASHINGTON, DC – The International Franchise Association (IFA) today released new research from Oxford Economics showing franchisees’ concerns with the National Labor Relations Board’s (NLRB) forthcoming joint employer standard. The survey shows that the rule is expected to increase uncertainty among franchisees, increase costs for franchisees, their franchisors and consumers, and decrease access to business ownership through franchising, which provides a pathway to ownership for women and people of color at disproportionately greater rates.

“This report confirms that franchisees have significant concerns about their ability to do business if the NLRB moves forward with its proposed joint employer rule,” said Michael Layman, IFA senior vice president of government relations and public affairs. “With a majority of franchisees highly concerned about both increased franchisor control and decreased franchisor support, this report shows that franchising currently has the right balance in the franchisor-franchisee relationship. Unnecessary, expanded joint employer liability will hurt franchised businesses – just as it did in 2015. Franchising is one of the greatest avenues to business ownership, especially for underrepresented groups, and this study shows that franchisees recognize these opportunities could be in jeopardy.”

“Our research found that franchisees expect significant business model uncertainty over the impact of the rule, which may disrupt franchise relationships, raise costs, and make starting a new small franchise business less appealing,” said Laurence Wilse-Samson, PhD, Lead Economist for Oxford Economics.

The specific findings in the report include:

• 74% of franchisees expressed a high level of concern at the prospect of increased franchisor control, and 55% a high level of concern with reduced franchisor support.
• 43% of franchisees expected some change in the franchisor/franchisee relationship. 22% of respondents expected franchisors to increase control over their operations, whereas 21% expected franchisors to distance and reduce operations and compliance support, and 38% did not know what to expect.
• 66% of franchisee respondents expected the new standard to raise barriers to entry into franchising with underrepresented groups potentially being hit disproportionately, especially women and minorities.
• 70% of franchisees expected increased litigation and the costs associated with it, as consistent with the results of the 2015 standard.
• Franchisees anticipate additional costs including increases in legal and advisory fees as franchisees and franchisors navigate compliance under the new rule, in addition to greater insurance and operational costs.

The NLRB released its proposed rulemaking on joint employment in September 2022. IFA and thousands of franchisee members commented on the proposal in December cautioning that the proposal could “wreak havoc on the franchise business model.” Today’s survey echoes those concerns.

The survey was conducted by IFA and FRANdata, in conjunction with Oxford Economics, throughout July and August 2023, receiving responses from franchisees across business lines throughout the United States.

The full findings and methodology are available here.

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About The International Franchise Association:

Celebrating over 60 years of excellence, education, and advocacy, the International Franchise Association (IFA) is the world’s oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations, and educational programs to protect, enhance and promote franchising and the approximately 790,492 franchise establishments that support nearly 8.4 million direct jobs, $825.4 billion of economic output for the U.S. economy, and almost 3 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees, and companies that support the industry in marketing, law, technology, and business development.