News Story

Michigan Pushes Back Against Feds on Labor Regulations

NLRB ruling could end franchising 'as we know it'

Last fall Michigan lawmakers passed and Gov. Rick Snyder signed a package of bills aimed at protecting franchise businesses from a ruling by the National Labor Relations Board. The ruling was unprecedented, with the American Bar Association saying that it would mean “an end to franchising as we know it.”

Franchises – McDonald’s restaurants are the best-known examples – involve a local business, a “franchisee,” that licenses brands and trademarks from another company, called a ‘franchiser.” Trade association experts say this popular business model accounts for nearly 500,000 Michigan jobs.

Earlier last year the NLRB ruled that franchisers like McDonald's can be held responsible for the actions of all the people who work for all the thousands of small businesses that happen to have permission to use their brand. This applies even if the franchiser does not pay those workers and has no control over them. In most cases these workers’ supervision, scheduling and pay come from a local business owner.

Legal experts say the ruling makes it easier for unions to organize workers in industries like restaurant chains, where lots of independent small businesses operate under franchise agreements with a few big companies like McDonald's. Instead of having to organize employees in thousands of small firms, unions can focus on just a single big franchiser. The NLRB ruling could also potentially hold franchisers liable for the actions and working conditions of employees who work for independent small businesses.

“The Michigan Legislature’s action is to be sure that, in matters of state law, the ruling by the NLRB will not affect the traditional and correct interpretation of the employer and employee relationship that has governed franchise law in our state for decades,” the National Federation of Independent Business said in a statement.

“With close to 16,000 establishments within Michigan and over 420,000 food service jobs provided by the industry, it is of the utmost importance to protect and encourage the entrepreneurs throughout this great state,” said Robert O’Meara, the vice president of government affairs for the Michigan Restaurant Association. “We believe that the legislative package signed into law is a positive step forward to better protect not only the business owners which help drive Michigan’s economy and provide individuals with well-paying jobs, but maintain a business-friendly environment within the state as well.”

The American Bar Association predicted in spring 2015 that if the NLRB ruling made a franchiser responsible for a franchisee’s employees, “the economics of the franchise relationship would be so fundamentally altered that one can almost predict an end to franchising as we know it.”

A labor law expert at the Mackinac Center for Public Policy said the Michigan Legislature deserves thanks for protecting small businesses in this state.

“The NLRB is consistently doing whatever they can to make unionization easier, whether workers want it or not and without any regard for the law or the consequences for business,” said F. Vincent Vernuccio in an email. “Their latest gambit would undo decades of precedent in the franchise industry and do irreparable harm to one of the bedrocks of small business.”

The SEIU national office didn’t respond to an email seeking comment.