The new Big Labor battleground (Scott Olson/Getty Images)

Why the NLRB is attacking the franchise model

Would you like to own a small business someday? If so, sorry — the Service Employees International Union would rather you didn’t. The SEIU has convinced the National Labor Relations Board (NLRB) to eviscerate the franchising model that many small-business owners rely on.

Under the current model, these small-business owners pay for the right to use a corporate brand. The franchising corporation researches appealing products. It also does marketing to promote the brand. In return, the local franchisees agree to produce those products to fit certain price and quality specifications. The local franchisee handles all the hiring and employment.


This division of labor cuts the risks of starting a small business, because the franchisee can focus on running the business without having to develop a market niche from scratch. A franchisee opening a new restaurant, for example, doesn’t need to market a new menu. The corporate brand has already done the work. The franchisor similarly does not have to operate thousands of local restaurants remotely.

Many businesses, from Burger King to Jiffy Lube to the Hair Cuttery, use franchising. It enables many Americans to run small businesses that would otherwise never get off the ground.

However, unions hate this business model. They find it much easier to organize big businesses than small ones.



Unions claim they organize most workers today without secret-ballot elections. Instead, they pressure firms into accepting “neutrality” and “card check.” Neutrality means the business stays silent during the organizing drive. Workers hear only the union’s sales pitch — they learn nothing about uncomfortable subjects unions train their organizers to deflect. Card check means workers vote in public, in front of union organizers. Unsurprisingly, under these circumstances unions almost always win.

Unions wage negative campaigns against big businesses to damage their reputation and pressure them into accepting card check and neutrality. They find it much harder to vilify small businesses the same way. Consequently, franchising makes union organizing more difficult.

The Burger King and Jiffy Lube brands don’t employ the franchisee’s workers. Local small businesses do. Unions would rather the brand do the hiring so they can pressure it into staying silent and forgoing a secret ballot.

So an Obama appointee at the NLRB — a former union official — just ruled that the brands “co-employ” workers with local small businesses. McDonald’s the brand now shares responsibility for its franchisees’ employees — workers it had no part in hiring.

This happened as part of a larger SEIU strategy to attack the franchise business model. The left-wing In These Times interviewed former SEIU activists and outlined this strategy last year:

SEIU also has a comprehensive national plan in the works, centered on the two public demands of $15-an-hour pay and the right to unionize free of intimidation. . . . The first step is to challenge the legal distinction between a corporation and its individual franchises. . . . SEIU aims to hold corporations liable for their franchises’ actions. Second, SEIU is pouring resources into compiling data about wage theft in the fast-food sector . . . The third planned step, organizers say, is for SEIU to use legal liability for wage theft to pressure fast-food companies into accepting “neutrality agreements” that allow employees to unionize without management interference.



This would effectively destroy the franchise business model. If the government holds McDonald’s liable for its franchisees’ actions, McDonald’s will need control over those actions. It will have little choice but to replace its local franchises with corporate-owned stores.

This would certainly benefit the SEIU. It would make unionizing fast-food brands much simpler — which would become a virtual license to print money. Unions charge new hires an initiation fee in addition to their regular monthly dues. For low-wage workers this initiation fee runs anywhere from $25 to $100. And fast-food restaurants have massive employee turnover. Half of McDonald’s employees leave within three months. In states without right-to-work laws, each replacement worker would pay a new initiation fee. The SEIU would make tens of millions annually just from employee turnover.

It is much less clear that unionizing would benefit fast-food workers. They would have to fork over union dues as well as initiation fees. However, a union would have difficulty raising their pay. Americans eat fast food because it is cheap and quick. Until that changes, unions can do little to raise wages — and thus prices — without driving away customers.

Furthermore, shutting down the franchise business model would devastate aspiring small-business owners. They would have to take the risk of developing an entire market niche themselves or, more likely, not go into business at all. The federal government would forcibly replace many small businesses with a few big businesses.


Big Labor would certainly find that easier to deal with. But that’s not the American Dream.

— James Sherk is the senior policy analyst in labor economics at the Heritage Foundation’s Center for Data Analysis.