Only in America? Mais non!
The famous 1976 Saul Steinberg cartoon in The New Yorker depicts a map of the world from the perspective of a resident of that city: beyond Manhattan, a few cities and states, small and faint; the U.S. ending at the Pacific, with Japan barely visible; and the country turning its back on the Atlantic, with Europe nowhere to be found. That sardonic depiction has come to be a shorthand way of thinking about the U.S.: myopic, with tunnel vision, imagining itself as the center of everything.
Franchisors and their counsel in America suffer from a touch of the same affliction. If there is a legal or regulatory issue affecting franchising in the United States, there is an immediate rush to decry the legalistic and litigious environment here, and to yearn wistfully for a more free and less onerous society imagined elsewhere, as my colleague and co-author Frederique Sallee and I have observed.
‘Joint employer’ in France
The “joint employer” brouhaha, now dominating the franchise legal landscape, is a recent example. Whether taking the form of regulations treating franchisors and franchisees as somehow melded for purposes of change in minimum wage structures; a labor law ruling finding franchisees to be “controlled” by franchisors on the basis of the routine exercise of influence over aspects of the business; variants of the same approach by legislatures or other agencies; or the “vicarious liability” or “ostensible authority” cases seeking to find franchisors responsible for acts of omission or commission by the employees of their franchisees, the common theme is unmistakable: the breakdown of the legal barrier between the franchisor and the franchisee, fundamentally altering the franchise model. And, inevitably, the wry observation, “only in America.”
As franchisors are now learning, that’s not true. That movement is to be found, in one form or another, in many other countries. A recent example in France, the European country where franchising is most successful, is instructive.
The context is one of those labor/management arrangements which, to the eye of a U.S. franchisor, is strange but of no great concern. Over a period of several months, a “Labour Law” has been debated, protested against, revised, adopted by the Parliament and referred to the Constitutional Court. In August that court upheld most of the law.
For the American reader, its purpose is to establish a vehicle whereby, at the behest of union representatives at the industry or company level, a company launches negotiations to establish a “social dialogue forum.” The forum addresses the decisions of the company that may impact the volume and structure of the workplace, including working time, hiring and working terms and vocational training of employees. The forum is also informed of those who enter and leave the enterprise.
The forum formulates, on its own initiative, and examines upon request, any proposal aimed at improving the work conditions and collective complementary welfare guarantees of employees of the network. Concerned union representatives are to establish a report and submit it for negotiation.
But what if that American reader is a part of the franchise community? So far, to the American franchisor it seems simply to be another example of the employee-friendly policies of the French government. Where the franchisor’s interest is piqued, though, is the impact on franchising.
As proposed, the contemplated forum would include franchisors. Those with more than 50 employees at the franchisee level and with certain forms of contract would be obligated to establish a “franchise network dialogue forum,” composed of a representative of the franchisor, representatives of the franchisee and representatives of the employees of the franchisees.
Expenses borne by franchisor
Elected employees would be granted at least 20 working hours per month to exercise their forum activity, with all expenses borne by the franchisor. The forum would be informed of the economic and financial situation of the network, forecasts and contemplated actions in response to potential difficulties. Available positions within the network would be identified in order to encourage professional mobility. In event of dismissal for economic reasons, the franchisor and franchisees have an obligation to seek employment opportunities within the network for concerned employees.
The economic burdens are obvious, but what most alarmed franchisor representatives—prominently including the French Franchise Federation—was the highly unusual establishment of a direct link between the franchisor and the employees of the franchisees, extending to some responsibility of the former to the latter, and a pervasive involvement by the franchisor in their working conditions and economic security.
The offensive nature of certain aspects of the extension of franchising led to its removal by the Senate, only to have it reintroduced by the National Assembly (with, by then, an increase in the number of employees required for the law to apply from 50 to 300).
Upon referral to the Constitutional Court most of the law was upheld. But several significant steps have been taken to alleviate the concern of the franchising community.
Principal among them is the recognition that franchisors and franchisees are not co-employers, but independent entities. Among other ameliorative revisions: the removal of the provision for paid time of employees to be diverted from work to participate in the forum, and the franchisor’s sole responsibility for operating, organizational and travel costs.
But no franchisor can be sanguine about this episode, or look upon it with complacency. It is yet another reminder that the model of franchisee independence from the franchisor remains imperfectly understood, vulnerable to ill-considered or even hostile actions to undercut it, and the preservation of that model requires not only education but advocacy.
Philip Zeidman is an international franchise law expert and a partner in DLA Piper’s Washington, D.C., office. Reach him at email@example.com. Frédérique Sallée, co-author of this article, is an attorney in the firm’s Paris office. Reach her at Frederique.Sallee@dlapiper.com.