Copyright: tiero / 123RF Stock Photo
Copyright: tiero / 123RF Stock Photo

While the debate rages over the fallout from the Obama Administration’s decision to revise overtime rules for the first time in almost a decade and a half, other threats to the franchising model continue lurking about as well. For example, my colleague Liz Sigety has been closely following legislative efforts to blunt the impact of any changes in the joint employer doctrine.

The Wall Street Journal today reports today about another growing challenge to the franchise model, under the curious headline–for a generally pro-business publication–of “Bosses Reclassify Workers to Cut Costs.” We all know about the myriad challenges franchisors have faced from lawsuits in many states where franchisees claim that they really are employees. It is an old issue about which we have written before.

The Journal article, though, explains that the Labor Deparment’s Wage and Hour Division is expected to soon issue a detailed guidance memo on worker classification. This will be the first such guidance since President Obama has taken office. David Weil, the administrator of the Division, appears to have the franchise industry in his sights–particularly as the article states that he has concerns about franchises sold to “low-wage workers such as janitors and delivery drivers who essentially pay franchise fees in exchange for work.” Apparently, Mr. Weil intends to make a distinction between “legitimate franchise forms” and what he terms “abusive” forms, which he claims are used solely to avoid minimum-wage pay requirements and other health and safety protections. In what appears an attempt to drive a wedge into the industry, Mr. Weil also said that he sees his effort as protecting the industry because, to remain competitive, rival companies will need to follow the lead of “unscrupulous firms.”

The guidance memo will be necessary reading for everyone in our industry. I look forward to reviewing it, and offering our opinion, after it is released.