The costs of anti-franchise rules

Bill McMorris of the Washington Free Beacon explores the impact of government rules that target franchise businesses.

An industry study found that the Obama administration’s crackdown on franchising has cut hundreds of thousands of job openings and dealt a $33.3 billion blow to the economy each year dating back to 2015.

A report put out by the International Franchise Association and a Chamber of Commerce found that the Obama administration provoked an “existential threat” to the franchise model in which small business owners operate under the umbrella of a national corporate brand. The Obama administration departed from decades of precedent when the National Labor Relations Board held that parent companies could be held liable for labor violations committed by franchisees. The report estimated that the new joint employer standard set curtailed expansion in the industry, leading to between 142,000 and 376,000 lost job opportunities—a 2.55 to 5 percent reduction in the workforce.

“All of this economic cost was predictable and avoidable,” IFA spokesman Matthew Haller said. “Franchise owners have incurred significant losses.”

The study was conducted by the Chamber of Commerce’s Dr. Ronald Bird, who served as chief economist at the Labor Department during the Bush administration. Bird said the industry had already witnessed a “chilling effect” that has caused parent companies to rein in their growth plans and ramp up litigation costs. Franchisees have suffered the most under the Obama era rules, as many now face heavier legal costs to stay in business. Litigation costs grew 93 percent in the industry and the nation’s 233,000 franchisees have lost an average of $142,000 in revenue, according to the report.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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