The ruling may have sent shockwaves through the franchising world, and brought predictions of the end of franchising as we know it – but here’s how franchising can and will survive by adapting to change.


For years, franchisors have had things pretty much their own way. I know, I am one.

Don’t get me wrong on this. I understand that franchise agreements have to favour the franchisor. The reason trotted out by franchisors and franchise lawyers for this is that by protecting the franchisor’s rights, you’re protecting all the franchisees from the possibility of a “bad apple in the bunch”. I get that, and it’s perfectly valid.

Autocratic and self-serving

What’s not valid is when the level of control exerted by franchisors goes beyond that and becomes autocratic and self-serving.

I accept that best practice in franchising is for franchisors and franchisees to put the franchise agreement in the “bottom drawer” and let the franchisor/franchisee relationship drive the franchise. I also accept that most franchisors are entirely fair and would bend over backwards to help franchisees who are struggling.

Resistance to change

Unfortunately, it’s the very few “bad apples” among franchisors who give the industry a bad name, but it’s not just the “bad apples” which have driven more and more franchisees to form associations to try to protect themselves and more and more government bodies to propose legislation aimed at levelling the playing field.

It’s a resistance to change by the franchise industry as a whole.

Sending shockwaves through the franchising industry

Take the recent case in the United States of the decision by the National Labour Relations Board (NLRB) to declare McDonald’s a joint employer in a number of unfair labour practice cases filed by employees who work at restaurants owned by franchisees.

This decision “has sent shockwaves throughout the franchise industry and for good reason”, according to David Sherwyn, a Professor of Law at Cornell University.

The NLRB decision appears to go against more than half a century of legal precedent in which franchisors cannot and will not be liable for the actions of their franchisees. But the decision implies that McDonald’s exerts such significant control over their franchisees’ actions that the franchisees’ independence as business owners is questionable and therefore McDonald’s can effectively be seen as a joint employer.

Moving the "control line"

Obviously McDonald’s is fighting this decision tooth and claw, but Professor Sherwyn points out that it may do them no good because the “control line” – the line at which the franchisor has traditionally been seen to be exerting too much control over franchisees for them to be seen as independent business owners – may not have actually been crossed. It may be that the NLRB is trying to move the line.

Is that surprising from a body influenced by a government which has been struggling to introduce better working conditions for workers? I wouldn’t have thought so.

But Professor Sherwyn believes that if the NLRB moves the line and the courts follow, the lot of the workers won’t change much. Franchisors will simply move their control back just enough to avoid being classed as joint employers. With the franchisors out of the way, will franchisees now be free – and willing – to improve wages and working conditions? Not a bit, claims Sherwyn.

The more things change, the more they stay the same.

Article by Robin La Pere, No Ordinary Business and Franchise Consultants

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Robin La Pere of No Ordinary Consultants has "been there and done that" when it comes to franchising - as a franchise manager, franchisor and franchise consultant. He has significant experience in helping franchisors build their relationship with franchisees, develop strong franchise cultures and adapt their business models and strategies to change and innovation.




"Robin had a significant and positive
impact ... on Signature Homes as a whole, as evidenced by the fact that our business became one of the fastest growing businesses in New Zealand, winning a Deloittes Fast 50 Business Award in 2003, seeing total sales soar by more than 500%."


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