The Service Employees International Union issued Monday a detailed, 33-page complaint asking federal regulators to investigate “abusive and predatory practices by franchisors.”
The union, which has targeted McDonald’s Corp. and other franchise businesses in a campaign to raise wages among workers and unionize them, has asked the Federal Trade Commission to investigate the business model. SEIU wants the commission to issue a report after its investigation detailing abusive practices and recommending ways they can be curbed.
In a statement, the International Franchise Association, a franchising trade group, claimed that the union was trying to “manufacture a crisis,” and it was critical of the union for spending millions of dollars to target franchising.
“Once again, the Service Employees International Union is manufacturing a crisis as part of its increasingly expensive public relations campaign, now estimated to be more than $33 million, to destroy the time-tested franchise model in order to fill its own depleted membership,” IFA CEO Steve Caldeira said in a statement.
“America’s 780,000 franchises make significant contributions to the U.S. economy, growing faster than the U.S. economy for five consecutive years, and employ nearly 8.9 million workers. The SEIU’s petition amounts to nothing more than asking the FTC to develop a solution for a problem that does not exist,” he said.
The petition came amid a busy week in the battle between union activists, franchises and restaurants. Labor organizers used falsified badges to enter the NRA Show in Chicago on Monday to stage a protest calling on NRA CEO Dawn Sweeney to talk with workers. Union activists are also expected to protest outside of McDonald’s Corp.’s annual meeting on Thursday.
SEIU, along with labor activists, has been pushing the industry to raise restaurant workers’ wages to $15 an hour, and enable workers to join unions. Many of the restaurant chains that the union is urging to raise wages are franchises, and franchisees — not franchisors — set wages and employ workers.
Last month, a survey by FranchiseGrade.com funded by a coalition of unions that includes the SEIU found that more than half of franchisees struggle to make a decent living, and nearly two-thirds wouldn’t recommend investing in their system.
The petition intensified the union’s campaign. The complaint is a compilation of “abuses” the union says demonstrates the “imbalance of power in the franchise relationship” and how the “franchise agreement frequently capitalizes on this imbalance.”
“Unlike traditional small businesses, most franchises reflect a profound imbalance of contractual power that favors the franchisor and places franchisees in a financially precarious situation,” the complaint says.
The petition says that most franchisees remain small, quoting information from Franchise Business Review stating that the average franchisee has one unit and a median income of $50,000 to $75,000 a year.
It also says that franchisors reserve the right to change the terms of their operating manuals, and it criticized franchise agreements for being “one-sided,” giving franchisors “broad termination rights” while affording operators “few to no rights to renew or sell their franchise.”
The complaint cited several restaurant brands, including McDonald’s, Wendy’s, Burger King, Quiznos, Blimpie, Cold Stone Creamery and others, but it broadly targeted franchises in numerous industries, including hotels, convenience stores, tax services and fitness franchises.
The petition claimed that franchisors use misleading financial information that doesn’t give prospective franchisees an accurate indication of how much money they can expect to make. It noted that franchise information firm Frandata provides lenders with more information on the profitability of franchisees that is not made available to the operators themselves.
It also cited data stating that from 1991 through 2010, one out of every six Small Business Administration loans to franchisees failed.
The petition criticized franchisor requirements that franchisees make expensive remodels of their locations. It also claimed that franchisors retaliate against members of franchisee associations, and that franchisors can terminate a franchise agreement “virtually at will.”
The union is asking the FTC to look at terminations, policies, performance representations, capital expenditure programs and other documents from at least nine leading franchise organizations.
The IFA, however, counters that franchisees are largely satisfied with their investments, citing a Franchise Business Review study indicating that 75 percent would “do it all over again.”
“Franchisees are highly satisfied, they have a high level of trust in their franchisors and they know they have remedies in place through their mutually agreed-upon contract, through the courts, and through many state laws if and when issues may arise between the two parties,” Caldeira said.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze