This year saw a number of hot-button issues make headlines in the world of franchising—some positive and some ominous. From franchisee uprisings to regulations that benefit consumers and employees, 2018 was a year that saw some real change in the franchising landscape.
New Joint Employer Rules Were Proposed
Back in 2015, the National Labor Relations Board (NLRB) ruled that a company – like a franchisor – that had indirect control over another company’s employees – say, a franchisee – made both companies joint employers of those employees. That potentially opened up franchisors to liability and labor bargaining issues involving their franchisees’ workforces. This raised the ire of franchisors, and McDonald’s even found itself embroiled in a lawsuit, one of whose central issues was whether the burger chain was indeed a joint employer of workers hired by its franchisees.
But in September, the NLRB board proposed changing regulations to declare joint employer status “only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment.” Indirect influence would no longer suffice, which would allow franchisors to breathe a sigh of relief. The NLRB is now accepting feedback on the proposed regulation changes from the public and could vote on the matter in the coming year.
McDonald’s Employees Strike Over Sexual Harassment
In September, McDonald’s employees in 10cities went on striketo draw attention to sexual harassment in the workplace. The hundreds that protested outside the brand’s Chicago headquarters called for better training for restaurant managers and more accountability.
Emboldened by the #MeToo movement, a number of employees have filed charges against the company, and the National Women’s Law Center’s TIME’s UP Legal Defense Fund is footing the legal fees. McDonald’s, in response to the protests, has said it will hire an outside expert to develop its existing sexual harassment policies and procedures.
Anti-Poaching Clauses Under Fire
It’s not uncommon for franchises to have no-poaching clauses in their contracts. These stop franchisees from hiring employees that work at other locations within the same company, which eliminates competition for workers within a system.
This year, several state attorneys general began questioning whether such clauses negatively impacted employees in their respective states, since it may reduces their freedom to find new, better-paying jobs. Brands began to take action on the issue as well, with Applebee’s, Church’s Chicken, Five Guys, IHOP, Jamba Juice, Little Caesars, Panera Bread and Sonic declaring they will drop no-poach clauses from their contracts with franchisees.
Those are just some of the brands that have dropped these clauses How many will follow suite in 2019?
Restaurant Franchise Calorie-Count Mandate
Food franchises like Taco Bell, Dunkin’ Donuts and Subway have begun listing the calories contained in their menu items, but they’re not offering up this information of their own accord—they’re doing it because they have to.
In May, the Food and Drug Administration put into effect regulations stating that restaurants, grocery stores and convenience stores with 20 locations or more must clearly display information on the caloric content of regular menu items, as well as providing more detail on the contents of food when customers ask.
The new regulation is part of the0 2010 Affordable Care Act, but it went into effect only this year due to delays caused by restaurants and grocery stores pushing for greater clarity on the guidelines exemptions from the guidelines—or exemption from them.
Franchisee Associations Are Flexing Their Muscles
In 2018 a number of large franchise brands felt heat from franchisees who’d joined together to speak with one voice. Franchise owners have shown that they are increasingly interested in having a say in the management and strategies set forth by their home office masters.
For instance, this year about 25% of McDonald’s U.S. franchisees banded together to form an owners’ association, the first such organization in the company’s history. According to a report from Crains, a majority of U.S. franchisees have registered to attend the group’s December meeting, which shows a potential increase in its ranks. The group can use its clout to push McDonald’s to address issues that affect franchisees, such as dipping sales, overhead costs and the pace of the brand’s mass restaurant remodeling plan, which was recently slowed due to franchisee cost concerns.
A similar organization of 7-Eleven franchisees – the National Coalition of Associations of 7-Eleven Franchisees, which represents the owners of nearly 7,000 stores – called on all the brand’s franchisees to skip the company’s annual conference coming up in February, as it questioned whether earnings from the event would benefit franchise owners. The coalition also took a vote of no confidence in company management this fall, citing lack of funding for shop remodels and equipment replacement, failing to disclose the risks of investment in the franchise, and dissatisfaction with the 7-Eleven franchise agreement.
San Diego-based burger franchise Jack In The Box was sued this year by its National Franchisee Association, which demanded an audit of the company’s marketing fund, as well as reimbursement for mandated store remodels. This year also saw the association take a vote of no confidence in company management, pushed for the ouster of Jack In The Box CEO Lenny Comma, and asked for a seat on the company board.
Papa John’s Leadership Shakeup
In July the founder of pizza franchise Papa John’s, John Schnatter, stepped down from his position as chairman of the board in the wake of revelations that he had used racially incendiary statements during a conference call. He had resigned from the CEO position in December of 2017 after woeful stock performance and following his statement that a drop in sales could be attributed to NFL national anthem protests.
Schnatter later sued the company he founded, demanding access to company information and office space. He also denied the severity of the racial slur that led to his ouster.Meanwhile, Papa John’s continued to lose market cap this year and franchisees took action of their own, hiring an attorney to represent their interests and investigate the causes of the drop in sales.
Massive Hotel Hack
This year Marriot International reported a data breach of massive proportions. In November, the Maryland-based company, which owns some 30 hotel brands and franchises including Sheraton, Westin, Renaissance and its namesake hotels, reported that the personal information of about 500 million guests may have been compromised in a computer system hack. Information that may have been exposed includes phone numbers, email addresses, passport numbers, dates of birth and travel schedules. credit card numbers and card expiration date.
To keep up on the latest happenings in the franchise industry, visit Forbes’ dedicated franchise pages here.
Follow me on Twitter @KarstenStrauss