The Outlook from Washington: Potential Labor Issues for Franchising

DC lawmakers weigh in on threats to franchises and how to avoid them

At the International Franchise Association’s Leadership Summit & Franchise Action Network meeting earlier this fall, franchisors, franchisees and suppliers came together in Washington, DC to spend time on the Hill educating government representatives about the role of franchising in the U.S., and to talk about the significance of franchising on our economy, and the impact of government on the franchise sector.

West Virginia Senator Joe Manchin joined the conversation to share his experience working with both Democrats and Republicans to represent his constituents’ interests, and how we all can play a part in holding our elected officials accountable to work across party lines to get things done to advance businesses and our communities.

Data from Franchise Business Review’s 2022 Industry Outlook survey of franchise executives identified labor costs, employee recruitment and staff retention as three of the greatest areas of risk. Jessica Looman, Principal Deputy Administrator of Wage & Hour Division at the U.S. Department of Labor, shared industry-specific resources to help mitigate those risks, as well as share some cautionary tales of employer/employee relationships gone wrong. Here are three of the biggest takeaways.

How to Protect Franchise Businesses in the Current Labor Market

1. Classification matters. There’s a lot of misinformation about how to classify workers, according to Looman. Independent contractors may make more money than an employee, but have fewer protections. Knowing if your people are independent contractors or employees is crucial to protect your business from government scrutiny. An employer cannot classify their employees as contractors just to avoid requirements at the federal and state level.

Another major threat to franchising is the continued debate over whether franchisees are independent contractors (self-employed) or employees of the brand. Systems like 7 Eleven continue to fight the FTC’s idea that franchisees are employees. All of us in franchising can attest that franchisees operate their own businesses and are NOT employees of the brands.

2. Protect young workers. Restaurants and food establishments have long been the first employer for teenagers looking for their first paycheck. As hiring continues to challenge business owners we see other establishments lowering age requirements to get their businesses staffed—but franchisees, like this Dairy Queen operator, can also get into hot water if they aren’t careful. While Wage & Hour Division offers best practices for restaurants on how to keep young workers safe, it’s a good list of questions to run through to make sure, no matter what your business is, that you’re doing what’s right to keep your team members safe.

3. Training for managers. Making sure your managers understand the rights of employees from a legal standpoint is crucial to avoid potential lawsuits if things go wrong with employees. Train managers on how to communicate conflicts with staff as they arise, when to escalate issues they see in the workplace so they can be addressed immediately instead of letting them fester, or even worse, not addressing them at all. Finally, educate managers on what defines “retaliation”, so if an employee leaves, managers aren’t doing anything that could put your business at risk.

All of these are critical to fending off legal and regulatory threats to franchise businesses. On the flip side, focusing on strengthening organizational culture and employee satisfaction—at both the corporate and unit level—can help both franchisors and franchisees proactively move the needle on hiring and retention metrics. The good news is that employee engagement in the franchise sector is high compared to many other industries, according to data from FBR’s latest Franchising@WORK study of franchise professionals; however, the research also revealed significant areas of concern. Conducting regular employee engagement surveys can help you keep a better pulse on your people and quickly identify concerns and trends before they become bigger issues.

Franchise Business Review has a number of resources that can help:

• How to Launch a Culture Club in Your Franchise System
• 7 Creative Ideas to Help Franchisees Overcome Staffing Challenges
• The Ultimate Guide to Employee Pulse Surveys

If you aren’t currently measuring employee satisfaction, now’s the time to start collecting data to plan your hiring and retention strategies for the coming year. FBR can survey your team and provide detailed insights on potential areas of risk and opportunity.

And if your franchisees aren’t getting formal feedback from their employees, FBR can help you implement system-wide surveys of your franchisees’ employees to benchmark satisfaction and engagement at the unit level and identify best practices—with the added benefit of third-party data collection to mitigate joint employer concerns.

Learn more about our Employee Engagement Solution for corporate teams and our Franchising@WORK program for franchisees.

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