Steve Joyce on the Issues Facing Franchising

All hell is breaking loose in the franchise world, but it’s made for an exciting year thus far for Choice Hotels CEO Steve Joyce, current chair of the International Franchise Association (IFA). The latest challenges include the National Labor Relations Board (NLRB) joint employer ruling and Seattle’s new minimum wage law. From his office at Choice headquarters in Rockville, Md., Joyce spoke to Lodging about the major issues facing franchisors and franchisees.

The NLRB recently ruled that McDonald’s could be held jointly liable for labor and wage violations by its franchise operators. What’s your take on the situation?
The McDonald’s situation is very serious. I typically see unions as a failure of management to live up to their responsibility, because if the employees are that unhappy, it’s usually a failure of leadership. I’m not against unions, but I am against things that impede the economy and curtail entrepreneurs from joining business systems because you’ve changed the rules of franchising, which means people aren’t going to want to do it. I can’t afford to franchise hotels if I’m going to be held responsible for everything that happens in that hotel. So I wouldn’t. I don’t think we’re going to go anywhere near that. It’s clearly bad for franchising, but it’s also bad for the economy. Two-thirds of all jobs get created in small businesses, most small businesses are franchises. To me, that’s pretty simple.

If the NLRB decision were upheld, what would this mean for hotel franchisors and franchisees?
It’s a slippery slope if you begin to say the franchisor is the de facto employer. If they’re the de facto employer, when somebody slips and falls on a property, are they responsible or is that really the independent business operator? I’m a big believer in the franchise model, because I think it’s where lots of fortunes have been created, and it’s one way to go into business for yourself but not be by yourself.

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Why is the NLRB targeting the franchise industry?
Most of the case law is fairly favorable to franchising, but you’ve got basically an NLRB-led effort to try to break down what has traditionally been a respected barrier of an independent business operator joining a system where they license and are responsible for their own businesses. And obviously they wanted to go after the biggest example of that, and that’s McDonald’s. There are some differences in the way McDonald’s approaches their system, but it’s still franchising. McDonald’s has created enormous wealth for lots of its franchisees who have then gone on to do great things. The idea to say that system doesn’t work—I don’t get it.

In August, the IFA filed a preliminary injunction to block portions of Seattle’s new minimum wage law. Any new developments?
In Seattle, everybody is getting confused. We’re not at all taking a position against minimum wage hikes. In Seattle, they deliberately said franchisees get the immediate hike because you’re a large corporation. We said, well wait a minute, they’re employers of 18 people. So there was a suit filed, which our counsel is very confident that we’re standing on very solid ground. You can’t discriminate against Joe’s sub shop versus a Subway shop because one’s part of a big company. The Subway owner is a small business guy that has 12 employees. We’ve got several properties in Seattle, so our franchisees came out to work with the council and help support the lawsuit.

What other types of issues does the IFA regularly go up against?
There’s always a concern about federal legislation that could be harmful to the business, but what’s been really happening over the last two years has all been at the state level. A number of bills have been introduced, which have been defeated so far. The IFA is the voice of franchising, so both franchisors and franchisees work together to say to the government, look, we don’t want you in the middle of our business because we think it works just fine. And yes, like any other situation, there are some times where a franchisor is not great and there are some times the franchisee is not great, but a lot of the legislation is around not allowing franchisors to police their system. So, there are things about, even though a franchisee is bad, the system couldn’t terminate them. Well, most good franchisees don’t want that because it hurts their brand, because they’ve invested in the brand. So, if we have a Comfort property that’s in the same market as another Choice property that isn’t doing well, that affects the Comfort, because people view it as the same portfolio. They want us to make sure we tell that franchisee, no, you have to run it right and you have to make it clean and make sure it’s well maintained. To interfere with that hurts everybody’s investment.