The International Franchise Association said Wednesday it expects franchises to add 247,000 jobs this year, a growth rate of 2.9 percent, which would be the fifth consecutive year that the franchise model outperformed other industries.
However, the IFA warned about government involvement, including the recent NLRB ruling calling franchisors “joint employers,” and the Affordable Care Act and its definition of “full time” as working 30 hours per week.
“Our industry continues to grow,” said Steve Caldeira, IFA’s president and CEO. “But we’re facing many public policy headwinds, and we could be growing faster.”
Franchises saw strong job growth in 2014, adding jobs at a faster rate than the overall economy. In 2014, the sector added 235,000 jobs, according to the IFA.
According to the human resources firm ADP, franchise employment grew 3.4 percent in 2014, while total private sector job growth was 2.2 percent. Franchise job growth has outpaced overall job growth for five years, according to the IFA.
In December, one of every six private sector jobs created was at a franchise, and one out of every 10 jobs was created at a franchised restaurant. Restaurant franchises added 24,050 jobs in December. Private businesses added 240,980 jobs during the month, according to ADP.
Much of the employment growth in 2015 should come from new locations. The number of new franchise establishments is expected to grow by 1.6 percent, to 781,794, this year. Total economic output from franchises should grow 5.4 percent, to $889 billion.
Gross domestic product from the franchise sector is expected to increase 5.1 percent. By comparison, the IFA expects total GDP to grow 4.9 percent. The outlook for growth is strongest among quick-service restaurants, the biggest part of the franchise sector, representing 20 percent of all franchises.
The IFA also noted that its “Franchise Business Index,” which measures a mix of employment, sales and credit conditions, increased 3.1 percent in November, its biggest monthly gain since the recession of 2008.
While business conditions are strong for franchises, the IFA said ACA requirements and the NLRB ruling could dampen that outlook.
Last month, the National Labor Relations Board issued a complaint against McDonald’s Corp. arguing that the operator should be considered a “joint employer” of workers employed by franchisees.
According to the IFA, the move threatens, “to upend decades of law and practice” by requiring franchisors to exert control over the employment process. Controlling labor costs is traditionally the franchisee’s responsibility, and key for many in their efforts to improve profits. While the ruling only applied to McDonald’s, the IFA and others said it could be used as precedent for the entire franchise business.
“It would radically change how franchise businesses operate, and not just in sectors like mine,” said Matthew Patinkin, an incoming IFA board member and an Auntie Anne’s franchisee. “They simply have their facts wrong and don’t understand how franchising works, or else they have an ulterior motive.”
Affordable Care Act concerns
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If a franchisor were a joint employer, that franchisor would have its hands in decisions over hiring and firing, benefits programs, disciplinary actions and equal employment, Patinkin said.
“We own our businesses,” he said. “It’s as simple as that. I’ve been in franchising for 20 years, with eight to 10 different brands. In each of them, the franchisor provided us with marketing support and product development. But we run our store operation. We schedule people. We determine what they earn.”
In a survey of IFA members, 97 percent said the ruling would have a “negative impact” on their business if it were to take effect, and 82 percent said that impact would be “significant.”
The IFA is also concerned about the Affordable Care Act, particularly a rule that qualifies employees as “full time” if they work 30 hours per week. The IFA, along with other groups such as the National Restaurant Association, is pushing for Congress to change that provision to 40 hours. Under the law, full-time workers are required to be included in a company’s health plan.
“When you layer on minimum wage increases, overtime rules, sick pay rules, the joint employer status and local employer rules, it’s a parade of horrible,” Patinkin said. “From a franchisee’s perspective, we run on very thin margins. As each one of these comes up, we may have to close our stores. That may cause job loss. That’s antithetical to what they should be doing.”
According to the IFA, more than two-thirds of franchisors and 85 percent of franchisees said their businesses would be “negatively impacted” by the Affordable Care Act. But they were more fearful of minimum wage hikes. More than 85 percent of franchisor and franchisee members said the increases would hurt their businesses.
“The threat of the ACA has been out there,” said Jim Gillula, IFA’s senior economist. “Despite the shadow of that, the franchise sector has outpaced overall employment growth. Despite the clouds on the horizon, we still see strong growth for franchising.”
Contact Jonathan Maze at [email protected].
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