Legal Threats To The Franchise Industry: Is This The Apocalypse? (Part 1)

Fox Rothschild LLP

Fox Rothschild LLP

Omens of the Apocalypse for the franchise industry are everywhere:

  • The pending Protect the Right to Organize (PRO) Act;
  • The return of David Weill, author of Fissured Employment and chief architect of the Obama era joint employment standard, to the Department of Labor as Wage and Hour Administrator;
  • Withdrawal of the control-based joint employment standard by the DOL, and potential replacement with an ABC test;
  • The shift of control at the NLRB, from majority Republican to majority Democratic control as early as August of this year;
  • State ABC laws, some of which are hostile to franchising;
  • An 87 page condemnation of the franchise industry by Senator Catherine Cortez Masto, urging adoption of a federal franchise statute and more robust regulation by the FTC;
  • The California FAST Act, which failed by just three votes, but will surely reappear in the next legislative session.

The franchise industry is facing challenges that strike at the heart of a vibrant, progressive business model that has allowed trademark owner franchisors and trademark licensee franchisees entrepreneurial opportunities to build wealth. The success of franchising is well-documented: nearly 800,000 franchised businesses employ 7.5 million workers; people of color, women, and veterans comprise more than 30% of franchisees; and franchised businesses generate revenues of approximately $670 billion.

My colleagues have periodically accused me of overreacting to these threats to the franchise industry, and perhaps when I began wondering whether the sky could fall, this was true. But not now. This is a perfect storm for the franchise industry. My prior blogs chronicled the accumulating challenges. I was not alone, of course. But never has the industry been in such peril. How bad could it be? The collective impact of these potential new actions go the heart of the franchisor/franchisee relationship that is the foundation of the entire industry. The ability of individuals to establish independent businesses by exploiting the good will, business acumen and know-how of brand owners (franchisors) could be destroyed.

In a series of blogs over the next couple of days, I will cover these threats in turn. First Up? The PRO Act.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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