GHN Thought Leadership
For thousands of AAHOA members and countless small business owners, the franchise business model served as the pathway to realizing the American Dream. The framework offered by a franchisor can help an entrepreneur establish a foothold in a market with a recognizable brand and provide them with the opportunity to apply their business and management acumen. Franchised businesses, such as hotels, provide significant benefits to communities, from job creation to the tax revenue they generate. The economic benefits are undeniable.
But ever since the National Labor Relations Board (NLRB) arbitrarily and unceremoniously overturned the decades-long joint employer standard in 2015, the franchise industry has struggled to adapt to and interpret the confoundingly ambiguous language the Browning-Ferris Industries ruling yielded. The vagaries of the NLRB’s subsequent actions (first overturning the ruling and then reversing that decision on a technicality) gave little confidence to franchisors and franchisees that a swift resolution would be reached. A prolonged and deliberative rulemaking process continues attempts to reestablish direct control of employees as the standard for joint employer status. Yet, while the Department of Labor works within its avenues of power to create a more precise standard, Congress is taking a bipartisan approach to complement these actions. With the likely reintroduction of the Trademark License Protection Act, there is much optimism within the franchise industry that these efforts will succeed.
Congressional action to curb bureaucratic overreach is nothing new, yet, with the unresolved questions raised by the Browning-Ferris Industries ruling threatening to upend the entire franchise industry, these attempts take on an added urgency. Congress continues to weigh legislation to prevent franchisees from losing control of their businesses. AAHOA members advocated strongly for the Save Local Business Act, which passed the House in the 115th Congress. This bill sought to create a statutory definition for joint employer. This would have required the Executive go through Congress to make any changes to the joint employer standard in the future. Regrettably, the Senate declined to take up the bill. Democratic control of the House in the 116th Congress suggests that this legislation will not be taken up. Fortunately, the bipartisan Trademark License Protection Act is likely to be introduced again. It is a positive step towards protecting small business owners’ rights to operate independent franchised businesses by removing an avenue that outside groups may try to use to designate franchisors as joint employers.
Guests, brands, and hoteliers have long known that brand standards are a staple of the guest experience. If you’re a typical business traveler, you tend to stay at one or two specific hotel brands because of the reliability of services and amenities or there is a good loyalty program. The décor, scented soaps, or even the waffle iron in the lobby’s dining room can offer travelers a sense of familiarity and consistency in an unfamiliar place. (Occasionally, this can lead to that momentary morning panic when you are not quite sure in which city you have awoken.) But not all hotels flying the flag of a particular brand are the same. Despite similar design, logo, staff uniforms, and overall feel, most of these properties are owned and operated by hardworking small business owners, not the brands. Those of us in the hospitality industry know this, but when AAHOA members travel to Capitol Hill, a surprising number of elected officials and staffers think franchised small businesses, from Marriott to McDonald’s, are owned by the brands themselves. Correcting this misconception is the first step in addressing how Congress understands franchise-relation and joint employer issues. Once lawmakers understand that small businesses are the ones operating these franchises, it is easier to explain why franchised businesses face a Catch-22 under the current law when it comes to their relationship with franchisors. Franchisees are required to adhere to brand standards in their franchise agreements, yet the required trademark enforcement through brand control outlined in the Lanham Act of 1946 could penalize franchisors and franchisees by assigning them joint employer status.
To remedy this inconsistency, Representatives Steve Chabot (R-OH) and Henry Cuellar (D-TX) first introduced the Trademark License Protection Act in the 115th Congress, although it did not advance beyond review by the House Judiciary Committee. The legislation would amend section five of the Lanham Act to clarify that trademark enforcement does not establish an employment relationship between the trademark owner (the brand) and a licensee. Simply put, brand control issues do not and must not constitute joint employer status.
We are cautiously optimistic that this bipartisan legislation will gain more traction in the 116th Congress. Brand standards give trademarks value by requiring franchisees to meet a consistent consumer expectation, but they have nothing to do with control over working conditions. As the NLRB and Department of Labor advance various rulemaking processes to clarify joint employer standards, it is time that Congress take the lead and uncouple brand control and joint employer status.