The International Franchise Association (IFA) commissioned Oxford Economics to assess the potential impacts of the National Labor Relations Board (NLRB)’s proposed revisions to the joint employer rule on franchising. Survey questions distributed by the IFA as part of their annual member survey allowed us to gain insight into potential consequences of the rule for franchisors and franchisees and their possible responses. Our report sets out those potential consequences with a focus on implications for franchisees.
Oxford Economics finds that one of the consequences of the ruling would be to introduce substantial uncertainty around the franchise business model with impacts on the franchisor/franchisee relationship. Parties will likely need a transition period to determine best responses and adjust. Specifically, these responses will depend on whether franchisors choose to increase oversight of franchisee businesses or distance themselves from them, to avoid being found liable as a joint employer. Survey results revealed that franchisees have high degrees of concern regarding either of these potential franchisor actions.
Oxford Economics also finds that the new ruling could lead to increased litigation and related costs. This is supported by earlier research into the implications of a similar decision to broaden the definition of joint employment. A 2019 IFA report found a rise in petitions related to joint employment in the period after the Browning-Ferris decision of 2015.
This ruling would likely lead to rising costs for franchisees. Some of these costs include legal costs, insurance costs related to heightened liability risks, and ongoing operations costs. In the case that the ruling leads to increased oversight and control by franchisors, this may interfere with franchisee independence and their ability to run their own business. Furthermore, rising costs can also impact franchise value and raise barriers to entry for new businesses, potentially disproportionately affecting underrepresented minority groups.
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The experts behind the research
Our Economic Consulting team are world leaders in quantitative economic analysis, working with clients around the globe and across sectors to build models, forecast markets and evaluate interventions using state-of-the art techniques.
Lead Economist, Economic Impact
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