A New Front in Union's Franchise Campaign

The labor group is asking the FTC to investigate the "predatory and abusive" franchise industry

Demonstrators gather in front of a McDonald's restaurant to call for an increase in minimum wage on April 15, 2015 in Chicago.

Demonstrators gather in front of a McDonald's restaurant to call for an increase in minimum wage on April 15, 2015 in Chicago.

Photographer: Scott Olson/Getty Images

Jose Quijano, a McDonald’s franchisee in Puerto Rico, said the burger chain’s corporate office is “destroying our livelihoods.” Jas Dhillon, a 7-Eleven store owner in Los Angeles, charged his parent company with forcing old franchisees under so the chain can resell the stores at a profit.

Those are old accusations, but they got a louder airing today on a conference call hosted by the Service Employees International Union, which has been fighting for raises for franchise workers.

The conference call announced that the union has filed a petition with the Federal Trade Commission challenging the agency to “investigate the franchise industry to determine the existence and extent of abusive and predatory practices by franchisors toward franchisees.” It's the latest salvo in the SEIU’s offensive against franchisor businesses, in which it has lent support to pro-franchisee legislation and highlighted the high failure rate of government-backed franchise loans.

Most franchise industry rules are written at the state level, where the intensity of regulation varies greatly. The FTC’s oversight is mostly confined to requiring franchises to file disclosure documents that help would-be franchisees decide whether to buy into a system. The SEIU's petition is in part an entreaty to Washington to take a greater role in regulating the industry.

To that end, the union asked the commission to document “the extent of abusive franchisor practices" and recommend "ways to curb these practices in the future." The petition probably means more coming from the union than it would from an individual storeowner. The SEIU has more than two million members, ties to the White House, and traction from its work advocating for higher fast-food wages.

"It's not uncommon for us to get petitions from any number of sources on any number of topics," said Frank Dorman, a spokesman for the FTC. "They’re all taken seriously."

The petition focuses on two main points: Franchisors aren't required to share much financial information with prospective franchisees, and once a franchisee buys into a system, she has little power in her relationship with the corporate franchise system. The SEIU's research into 14 major franchise chains, including Burger King, Great Clips, and Dunkin' Donuts, found that each franchisor reserved the right to terminate a store owner's franchise license for any violation of the system’s operating manual. All 14 chains also reserved the right to change the operating manual unilaterally.

Franchisees have made such claims in the past. Quijano was criticizing McDonald's 2007 decision to sell Puerto Rico franchising rights to an Argentine company called Arcos Dorados, echoing an FTC complaint brought by Puerto Rico franchisees in 2014. Dhillon has sued 7-Eleven, which has denied his claims in the past.

The petition "is driven by a union-financed campaign that has targeted the McDonald’s brand," McDonald's spokeswoman Lisa McComb said. "It’s ironic that this organization, that has spent more than $80 million during the past two years to disrupt operations of these same businessmen and women, is now appealing to them for an alliance," she said, referring to SEIU-organized protests.

How far is the union willing to go for store owners? Union official Scott Courtney said corporate franchisors are “abusive and predatory” toward franchisees. “Workers making higher wages shouldn’t come from the pockets of franchisees,” he said, adding that franchisors are the ones “with the money and power to change the system.”

But the interests of franchisees and their employees align only so far. Franchisees may say they would pay higher wages if franchisors loosened the reins on profit margins, but that’s different from wanting to employ organized workers. Likewise, asking the FTC to investigate franchisors' control over franchisee operations is different from the SEIU fighting for truly independent store owners. Ultimately, it’s a lot more efficient to organize a franchise workforce employed by a handful of big companies than to advocate for workers employed by thousands of independent franchisees.

(Correction: An earlier version of this article dropped the last letter of the FTC in the sub-headline.)

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