NLRB Ruling – Future of Hotel Franchising Model in Question

McDonald’s, one of the biggest names in the fast food franchising industry, is taking a beating from the numerous complaints filed against for the alleged violation of the rights of its franchisees’ employees. A ruling by the U.S. National Labor Relations Board may pave the way for a radical change, not only in the franchisor’s operations, but also in the franchise model itself – including that of hotels and hotel chains.

The NLRB general counsel said the parent company McDonald’s may be held liable for the acts of its franchisees and considered their joint employer. The statement caused a stir in the franchising world, particularly in the hospitality sector.

If the hotel franchisers, franchisees and industry supporters are to be believed, the hotel businesses and their chains are being targeted by labor unions. Observers say franchising as a business model has long been despised by such organizations, which is precisely why the complaints just keep on coming.

Labor groups are aggressively presenting the many issues besetting the employees of franchisees. With the goal of preserving the rights of employees and in part protecting the consumers, unions say they oppose what they often label as the greedy tactics of corporations, whereby they ultimate put workers out of their priority list and neglect their rights in doing so.

The ruling of NLRB on the McDonald’s debacle will clearly become the catalyst for the change that organized unions are after, according to observers. Chip Rogers of the Asian American Hotel Owners Association said the effects of such a verdict “could be devastating because it strikes at the heart of the franchising model.”

Roger, however, points out that it is important to consider that the fast food and hotel industries may be utilizing the franchising model, but that the distinction has to be made.

“If this were to become law, essentially it would end franchising as we know it. This has been one of the goals of organized labor [who] aren’t big fans of franchising, and they believe they stand a better chance of organizing local stores if in fact they’re not owned by a local owner, but by a corporate entity, according to Rogers as detailed in a feature story by

Sources said continued expansion of franchising in the hotel industry might depend on a favorable outcome of the NLRB case.

Bill DeForrest, president and CEO of Spire Hospitality, an Illinois-based operator of 20 hotels, dispelled the notion that franchise companies are deeply involved in the operations of their franchisees’ hotels.

“They’re not in the business of controlling how we manage our associates,” DeForrest said. “The franchisees control the business on a day-to-day basis as long as they are good brand citizens. If not, then the franchisor will take steps to correct it.”

“In the hotel business, franchisees actually own the real estate and run their businesses, whereas the franchisees in a lot of fast food businesses don’t actually own their real estate,” he said. “One of the things we struggle with is that people just don’t understand how (the hotel) business is structured, that it is really a collection of entrepreneurs and small business owners.”

“We need the franchisor-franchisee relationship as it stands today, and I don’t see how that can change,” DeForrest said. “The ability for an entrepreneur to enter into our business could be harder because the process by which franchises get approved and the process by which they have to manage and report would be so much different. It could limit the ability of our industry to grow.”

Rogers believes the ultimate solution might come through legislation.

“It will certainly be tied up in the courts for some time, but it would be best for Congress to alleviate that by making a clear statement on the rights of franchisors and the rights of franchisees,” he said. “If legislation is necessary to correct or clarify this, then that is the route we need to take.”

Photo by Georgios Vals

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