Alabama should protect small business franchises

Published 3:00 am Wednesday, May 17, 2017

The relationship between franchisee and franchisor is a special one in the world of business. It has enabled tens of thousands of entrepreneurs to own and operate a business, provide consumers with a highly desired good or service, and support communities by creating jobs.

Take for example, the Alabama company, LINE-X, which was ranked No. 218 among the top 500 franchises for 2017 by Entrepreneur Magazine and last month was named the 2017 Medium Manufacturer of the Year by the Business Council of Alabama and the Alabama Technology Network. Today, LINE-X has more than 600 franchised locations in more than 60 countries and has a reputation as one of the most veteran-friendly franchise businesses in the United States.

But two years ago, a political body in Washington, D.C., made being a franchise owner risky in a way that wasn’t fair or even expected at all. The 12,000 franchise owners of Alabama have an opportunity to be relieved of this unfair burden, but they need both the state Senate and Gov. Kay Ivey to act.

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When the National Labor Relations Board (the Supreme Court of labor and employment law, which often operates in the shadows and with a strong political bent) ruled on a case known as Browning-Ferris Industries in August 2015, it changed that special relationship between locally owned businesses and their larger franchisors by dramatically expanding the definition of a “joint employer.”

Before this decision, a bright line existed between the franchisee and the franchisor when it came to employment and liability. Matters between workers and franchisee management didn’t involve the brand name companies – the relationship between employee and business owner was instead typical of any small business.

If this arrangement sounds fine to you, that’s because it is. Working in a small business means employees personally know who owns the business. In some cases, the owner is their supervisor. This highly personal management situation is usually empowering for workers because it makes employers more accountable to their employees.

While the small-business management relationship is embraced by most, some groups devote considerable time and resources to disrupting it. Labor unions, struggling for membership in a modern workforce that doesn’t see their value, are desperately looking for ways to come between small-business employers and employees by unionizing the smallest businesses. Union leaders, worried about their salaries and comfortable lifestyles, see smaller businesses (like franchise shops) as a potentially huge source of dues money. 

The NLRB’s change to the franchisees and franchisors “joint employer” relationship was a gift for union leaders – a jackpot that opened an enormous new market for union membership. After all, there are 780,000 franchise establishments in the U.S., employing almost 9 million people.

With new political leadership in Washington, the NLRB’s members will soon change. The board will likely become more understanding of small businesses. But the decisions of the past remain, and it’s up to legislative bodies (state legislatures and Congress) to protect those small businesses that have been hurt by this, and other, bad NLRB decisions.

Some neighboring states have already passed laws to protect small franchise owners from the NLRB joint-employer decision. In Texas and Tennessee, legislatures have passed laws clarifying how state government agencies should treat franchisees and franchisors – not as joint employers, but as separate management entities.

Alabama should protect its small franchisees by following their lead and enact a bill that has already passed the House as well as a Senate committee.

The Franchise Business Protection Act, HB390, sponsored by Rep. Jim Carns, R-Birmingham, passed the House 96-0 on a bipartisan vote and now must pass the Senate and be signed by Gov. Ivey in order to protect Alabama’s small franchise employers from the NLRB’s dangerous joint-employer standard.

William J. Canary is the president and CEO of the Business Council of Alabama and Glenn Spencer is the vice president of the Workforce Freedom Initiative, a campaign of the U.S. Chamber of Commerce.