Originally posted on Crain’s Chicago Business, January 5, 2017
Opinion: Why Trump should be huge for the franchise industry
By: MARK SIEBERT
Whether or not you like him, are comfortable with his character, or agree with his stance on international trade, immigration, gun control and a host of social issues, President-elect Donald Trump almost certainly will be good for franchising.
The franchise industry as a whole continued to thrive during Barack Obama’s presidency, with average annual job growth of 2.6 percent over the last five years—nearly 20 percent higher than for all businesses, according to the International Franchise Association. Today, the nation’s almost 800,000 franchisees employ 9.1 million people, the association says. In Illinois alone, there are 29,000 franchised establishments with a total of 321,000 workers.
But the industry did so while overcoming some of the most significant obstacles that franchisers have faced since the Franchise Rule was instituted in 1979. In recent years, both franchisers and franchisees have been hampered by changes in the rules for overtime pay, the definition of joint employment, burdensome regulations and requirements for health insurance that could substantially alter their business economics.
Perhaps the biggest concern in the franchise community has been the National Labor Relation Board’s recent departure from the traditional interpretation of joint employment. Under the Obama administration, the NLRB broke from long-established precedent and ruled that a franchiser could be a “joint employer” of its franchisees’ employees even if it did not control their conditions of employment.
This move created fear in the franchise community, as it could impact the potential liability of franchisers for the actions of their independent contractor franchisees and their franchisees’ employees. Meanwhile, franchisees worried that their “joint employer” franchisers would exercise control over day-to-day operations and perhaps be forced to the union bargaining table—potentially compelling these formerly independent businesses to adopt wages and benefits they did not bargain for—putting them at a competitive disadvantage against their nonfranchised competitors.
As Trump begins replacing the NLRB’s members and its general counsel, we can anticipate a return to the more rational standard of “actual control” that previously existed, greatly reducing these concerns.
Trump’s nomination of Andy Puzder as secretary of labor will further boost franchise growth. As chief executive of CKE Restaurants, which franchises most of its Hardee’s and Carl’s Jr. outlets, Puzder intimately understands the franchise business model and how issues such as joint employment, the new overtime threshold—the rule, put on hold by a federal judge, would require overtime pay to full-timers earning less than $47,476 a year—have hindered its growth. If confirmed, Puzder will work to roll back these ill-conceived initiatives.
Trump’s pick of Linda McMahon to head the overly bureaucratic Small Business Administration and its $124 billion loan portfolio is another encouraging sign, as the SBA has become increasingly difficult for franchisees to deal with in recent years. As former CEO of pro-wrestling’s WWE, an international licenser that started as a true small business, McMahon is well-suited to bring a much-needed streamlining to this organization.
Additionally, while it is too early to speculate on what modifications in the tax code and changes to the (un)Affordable Care Act will look like under President Trump, both should fuel significant expansion in franchising and small business more generally.
Ultimately, the best solution for higher wages is more jobs. As demand for employees rise, so too will the competition for the best employees. By eliminating the barriers faced by our country’s businesses, America’s greatest job creator will continue to drive job growth in 2017 and beyond.
Mark Siebert is CEO of iFranchise Group, a franchise consulting firm in Homewood.