Drive down any city street and you will certainly see at least a handful or two of franchises. McDonald’s, Supercuts, UPS Store, Gold’s Gym — and on and on — dot thoroughfares throughout the country.
The franchisees of these businesses employ thousands of people, but are these employees also employees of the franchisor? In 2015, the National Labor Relations Board (NLRB) tweaked the definition of an employer to be an entity that has even minimal, indirect control or influence over an employee, which would mean that franchisors are considered joint employers of the franchisees' employees. According to the Department of Labor’s website, joint employment is defined “when an employee is employed by two (or more) employers such that the employers are responsible, both individually and jointly, to the employee for compliance with a statute.”
The Browning-Ferris Industries of California, Inc. case that led to that decision is under appeal in the U.S. Court of Appeals for the District of Columbia. With this appeal and a new presidential administration, some people think the definition of joint employer may revert to the previous looser definition, but no decision has been handed down as of this writing. The decision could affect a growing number of businesses since the International Franchise Association's 2016 State of the Industry Report predicts a 1.7 percent increase in franchises in 2017, bringing the number of franchises in the United States to almost 800,000.
“The franchise industry talks about little other than joint employer these days,” said Ric Cohen, of Cheng Cohen, a full-service franchise law firm in Chicago. “[The question] of who’s going to be liable — the franchisee or franchisor — is an additional risk becoming more and more prevalent.”
Ten states have passed laws that, for the most part, relieve parent companies from being responsible for franchisees when dealing with its state wage, hour and anti-discrimination laws. Another 11 currently have pending legislation.
Opinions in the Fitness Industry
It is difficult to gauge how a change or status quo of the definition of joint employment will affect the fitness industry as a whole. Fitness franchisors don’t just hand over the keys to new franchisees and then rarely check in, but the beauty of being a health club franchisor is having minimal involvement in the day-to-day operations of its franchisees. Having a say in who is hired, what their pay and hours are, and how to discipline them are most often left to the franchisee ownership. The same goes for determining which certifications employees must have.
Much of the concern about the NLRB rule comes down to liability. If a franchisor is considered a joint employer, then a lawsuit could be levied against them as well as the franchisee. Either way, an employee can sue both the franchisee and franchisor under federal law, but added liability could curtail franchising in any industry.
If the current joint-employer definition remains, then franchisors will have to keep a closer eye on the goings-on of the many locations within their brand. If the appeals court reverses the decision or the Trump Administration loosens the reins a bit from the inherited definition, then franchisees will be able to go about their day-to-day business, taking cues and advice from its parent company — when both sides want it that way.
The current joint-employer definition doesn't concern everyone in the fitness industry.
“I don’t think [joint employment] will ever affect the fitness industry,” said Ben Midgely, CEO and co-founder of Crunch Fitness, which has about 100 franchises in addition to 50 corporate-owned locations. “[The fitness industry] is not a big enough target. I don’t see it as an issue going forward.”
Woodbury, Minnesota-based Anytime Fitness, which has 3,500 individually owned and operated franchises worldwide (international locations would not be included) has a vested interest in the outcome of this decision.
“Our franchises should be able to hire and fire as they want and staff their gyms how they see best fit,” said Mark Daly, national media director for Anytime Fitness. “We don’t want to make purchasing decisions or tell [owners and managers] when they must be present in the gym. We want them to make decisions; that’s what [owners] like about Anytime Fitness — flexibility."
Considering Anytime as a joint employer would force the company to reconsider all operational practices and implement control over many business decisions now handled exclusively by independent franchisees, such as standardizing hiring and staffing practices, Daly said, which could take away the individuality franchisees enjoy as well as add work and responsibility to the franchisor.
“Anytime Fitness franchisees, like any franchisee, decide to invest in a franchise because they want to realize what is oftentimes a life-long dream of being an owner of a small business,” Daly said. “True franchisors provide guidance and support to franchisees. And they take that responsibility very seriously. But we have no interest in micromanaging our independent franchisees.
“We’ve spoken with many of our franchisees about this issue, and they share our feelings that they don’t want to be micromanaged any more than we want to micromanage them.”
The International Franchise Association (IFA) has lobbyists fighting in its favor. Anytime Fitness co-founders Chuck Runyon and Dave Mortensen recently spoke at the IFA conference, and since then, Runyon, Mortensen and some of their franchisees have been asked to speak with congressmen in Washington, DC, as well as hold roundtable discussions in their gyms for elected officials and local businesses. Daly said those are positive signs for fitness franchises.
“Based on what I hear from members of the International Franchise Association, franchisors of all types … [are] opposed to NLRB interpretation,” Daly said. “All [franchisees] want is to be an independent business owner. We don’t want to control their day-to-day operations.”
Don Allen has a pretty good view of the situation with his diverse background in the industry. He was a longtime manager of Gainesville Health and Fitness in Gainesville, Florida, a large multi-purpose gym with three locations, as well as LA Fitness. He is also part of Tampa Fitness Partners, which owns Orangetheory Fitness locations and has franchises.
Allen's group, not unlike Anytime Fitness, prefers the separation of franchisor and franchisee. They own own six separate facilities with three more under construction. They also are franchisors to 15 others.
“I’m aware of the different forces pulling this issue in different directions,” Allen said. “We feel like at the end of the day, franchise owners want to be independent owners. We don’t want to be employed by a corporate office. And franchisors don’t want to be their employers.”
How Could Status Quo Affect the Industry?
Cohen said he has heard in franchise circles that the Service Employees International Union (SEIU) is pushing this issue to increase minimum wage for the close to 200 million workers in the United States and Canada that it represents.
In most areas of the country, health club operators pay above minimum wage to get and retain the best trainers and managers, but other areas on the payroll, such as maintenance staff, could be affected.
“The issue at the end of the day is simple: minimum wage,” said Midgely. “The large franchisors are being targeted because they have so many employees. They are trying to force the hand to have businesses pay more.”
Cohen tells his clients to limit what to get involved in with its franchisees.
“What we generally say is … exercise control over what is truly important to your concept and your brand,” he said. “Stay out of the areas that are not necessary to be so closely controlled, such as employment.”