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The NLRB Rule Explained

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Government regulations and rules sometimes help level the playing field for businesses. But in other cases, unelected bureaucrats can hurt businesses that are creating jobs for you and me. New rules coming out of Washington may hurt franchised businesses.

When it comes to business ownership, you often hear the terms franchisee and franchisor. A franchisor is like Subway Sandwiches. They own the brand and license it to small business people who might own one or two stores. There are literally thousands of franchisors in many different industries.

Currently, if you want to open a franchised restaurant or retail store, you sign a deal with the franchisor (the company that owns the rights to the name, menu or products, and business model). The franchisee pays for those rights and agrees to maintain quality and follow certain standards.

However, the franchisee is a separate business that makes its own decisions on who to hire, how much to pay, and what benefits to offer. This system has worked really well, creating more than 770,000 small businesses and supporting more than 18 million direct and indirect American jobs. Importantly, minority franchisees make up 20% of those businesses often locating in minority communities and employing minorities in those communities.

Right now the National Labor Relations Board, a group of unelected bureaucrats, is trying to redefine the relationship between franchisees and their corporate partners (the franchisor). The idea is to make the bigger company responsible for complaints made by employees of the smaller companies where they actually work.

If the National Labor Relations Board successfully redefines the relationship between franchisees and franchisors, there may be far fewer new businesses and the jobs they create… because franchisors will be much more hesitant to give inexperienced people a chance at opening a franchise. After all, why would they want to be in any relationship where they were responsible for thousands of decisions made by smaller companies every week.

Botton line: this new definition slams the door shut on one of the proven paths to break into the business world. Sometimes Washington needs to understand “if it’s not broken, don’t fix it.” Now that makes sense.