government relations
State Legislative Wins for Franchising Outpace Losses

2016 was successful from a state legislative standpoint with six positive joint-employer bills and a positive non-compete bill, all signed by governors, while potentially harmful legislation was defeated in multiple states.



By Jeff Hanscom
Here we are again, inundated with pumpkin spiced everything, the leaves turning and the holidays just over the horizon. And with all that, the 2016 state legislative session has all but come to a close. As I wrote in this space last November, it’s a good time to look back and recap what transpired across the country, with legislation impacting the franchise model moving from Sacramento to Hartford and many capitals (and cities) in between. Like 2015, 2016 had its share of ups and downs, fortunately with the wins far outpacing the losses another legislative year comes to a close without a major setback for the franchise community in terms of state legislation, although municipal level issues are quickly becoming a concern. 
First the good, which included six proactive bills signed by governors in 2016 solidifying the franchisee/franchisor relationship, paving the way for business certainty into the future. This effort built upon three similar bills signed in 2015, bringing the total over the last two legislative sessions to nine (2016 states in italics): 
  • Texas
  • Tennessee                                    
  • Louisiana
  • Utah
  • Wisconsin 
  • Georgia
  • Michigan
  • Oklahoma
  • Indiana  
While each of the nine states have passed a slightly different version of the legislation, all reach the same result, pushing back against bureaucratic overreach originating at the National Labor Relations Board. While each state law is preempted by the National Labor Relations Act, the legislation effectively codifies the traditional joint employer standard (as opposed to what is currently being pushed by unelected bureaucrats at the NLRB) for purposes of state law and protects businesses in those states from certain joint employment claims at the state level. Additionally, these bills provide clarity to state agencies when they are presented with joint employment claims.
Each state law has been unique, tailored to suit the needs of each individual legislature and state. At their core, the laws are based on the reality that franchising is a mutually beneficial contractual agreement between two parties, but not one which creates an employee/employer or joint employment relationship between those two parties. Each state law provides for the same two fundamental principles:
  1. A franchisee is not an employee of his/her franchisor; and,
  2. A franchisee’s employees are not employees of the franchisor.
So what else has happened at the state level outside of proactive joint employer bills? Well, ask and you shall receive… a breakdown of what happened across the country:
  • Pennsylvania–Franchise Relationship: HB 1620 was a reintroduction of a bill first defeated in 2014 that would have upended the franchise relationship in Pennsylvania. As in 2014, IFA was able to work with legislators, local coalition partners and Pennsylvania franchisees and franchisors to defeat the bill. 
  • California – Franchise Growth: In conjunction with the California Franchise Bar Association, IFA promoted Assembly Bills 2637 and 1782. AB 2637 would have simplified the process by which prospective franchisees and franchisors negotiate with each other, thereby promoting small business growth in California. AB 1782 would have put California in a better position to retain and attract trade shows, while also leading to greater exposure of entrepreneurial opportunities to California residents. For years the West Coast Franchise Expo was hosted in California, but has now moved to Denver, Colo.

    Unfortunately, Gov. Jerry Brown (D) elected to veto both bills based on a concern raised by the Department of Business Oversight. Both bills received unanimous and bipartisan support in the legislature. 

  • Massachusetts – Predictive Scheduling and Minimum Wage: There were several legislative proposals that contained discriminatory minimum wage provisions against franchised businesses, all of which died when the Massachusetts legislature adjourned in the beginning of August. Additionally, IFA worked against a potential harmful bill attempting to ban non-compete clauses from use in Massachusetts. 
  • New York – Minimum Wage: Last summer, New York Gov. Andrew Cuomo (D) convened a “Fast Food Wage Board” to examine minimum wage within the fast food sector. As expected, the board recommended an increase in the fast food minimum wage to $15 per hour to be phased in by 2018 in New York City and 2021 across the rest of the state. The Wage Board process allowed Cuomo to circumvent the legislature in Albany. A legal challenge is ongoing.
  • Connecticut - Living Wage/Joint Employer: SB 391 would have levied a surcharge on the franchisor as a joint employer to cover its franchisees’ employees who elect to enroll in the Connecticut State Health Program, known as the Husky Program. IFA is preparing for a similar fight in 2017. 
  • Nebraska – Non-Compete Agreements: IFA led the effort on LB 942 to allow arbitrators and the courts to enforce non-compete agreements after removing unreasonable restrictions, which is the standard practice in more than 40 states. 
  • Iowa – Sourcing: Iowa Senate File 2277 was defeated in 2016. The legislation would have given franchisees almost unfettered latitude in purchasing petroleum products for resale. 

City & Municipal Issues

Seattle & New York City: Joining San Francisco, Seattle recently enacted a discriminatory ordinance calling for “secure scheduling” and requiring employee schedules to be finalized two weeks in advance. This rule also obligates employers to compensate workers for lost shifts, which places an additional burden on employers in the event of last minute schedule-changes. It only applies to chain (franchise) restaurants and large retail establishments. Similar city level ordinances should be expected moving forward, including in New York City, where Mayor Bill De Blasio (D) announced a similar effort.
Overall, 2016 was a successful year from a state legislative standpoint with six positive joint employer bills and a positive non-compete bill, all signed by governors, while potentially harmful legislation was defeated in multiple states. Without a doubt, individual cities will continue to be a political battleground, especially considering the “blue dots in red states” phenomenon in various red-leaning states with blue-leaning cities. Stay tuned next month for a preview of what is sure to be an eventful and exciting legislative year in 2017. 
Jeff Hanscom is Senior Director of State Government Relations & Public Policy for the International Franchise Association.