Franchise Matters: The Franchise Business Model is Under Attack

Faegre Drinker’s newest podcast series, Franchise Matters, aims to make a difference in franchising for all stakeholders, especially franchisors who understand and are committed to leading their franchise brand and system for the success of their franchisees. The podcast addresses both challenges and opportunities facing franchisors, with best practices strategies and solutions to get results in real time.

In this inaugural episode, partner Brian Schnell sits down with executive partner Heather Carson Perkins, labor and employment partner Andrew Murphy and business litigation associate Rory Collins to discuss current issues that affect the franchise business model, including:

• The FTC’s request for information to seek comments on disclosure-related topics and franchise agreements and franchise/business practices regarding certain aspects of the franchise relationship and how franchisors exert control over their franchisees.
• A franchisor’s “indirect” controls over its franchisees’ operations and the possibility that this will be part of the NLRB’s Final Rule on joint employment. As franchisors navigate key areas of the support they provide to franchisees, including training, employee recruiting tools and field visits, they can modify their approach and writings to mitigate joint employer risks in these key areas.
• Enforcement of brand/system standards is core to the franchise business model, but franchisors should consider distinctions between requiring franchisees to meet the “top line” brand standards and making recommendations/suggestions on the “below the line” manner and means how to meet the standards.
• Franchisors and franchisees who utilize independent contractors in ways that are prone to employee misclassification allegations should assess how they are addressing the factors that are considered in the proposed misclassification rule and determine where they can make changes to mitigate risk.
• With the FTC and other federal and state regulators scrutinizing employee noncompetes, franchisors should consider appropriate changes to noncompete agreements and policies that they or their franchisees use.

Additional Resources

• Utilize the Franchise Agreement and Operations Manual to Protect the System and Appropriately Define the Roles and Responsibilities of the Parties 
• Five Best Practices for Franchisors to Thrive Amid Game Changing Franchise Regulatory Developments