IFA Legal Symposium 2017 or: How I Learned to Stop Worrying And Embrace Joint Employer

(Apologies for the super deep franchise law joke in the title.)

Earlier this week, I had the pleasure of attending the International Franchise Association’s Annual Legal Symposium. This year’s event just happened to be the 50th anniversary of the event.

Now before I get to some of the things that I took away from the conference, let me go ahead and answer the same question for you that I was asked by everyone else (mostly attorneys) who were attending the conference: Why was I there?

The short answer is curiosity, but I’d add a bit of the desire for education.

As you know, some of our companies sit at the intersection of technology and franchising. And while franchise tech is important, in some ways it pales in comparison to franchises and the law. (Franchising at its core is a contract between a franchisor and franchisee…) So we feel it’s vital that we continue to better understand how franchises function and why.

Well after this week, I’m confident in saying there’s no better way to understand what a franchise is and how it works than from a legal perspective.

Rather than give you a list of all the things I learned while I was there (and there were many), let’s take a look at what the franchising legal world seems to have its eyes on.

Joint Employer

Easily the hottest topic issue regards the joint employer standard as it applies to franchises. Essentially, there is a major debate right now as to whether the employees of franchisees are jointly employed by franchisors as well. As it stands now, there are fever-pitched levels of uncertainty due to courts, the National Labor Relations Board, state governments, and Congress all having different stances on the issue. If it’s deemed that franchisors do not jointly employ the employees of the franchisee, then it’s business as usual. If the opposite proves to be true (which seems like a less likely outcome from my perspective), the franchise world will never be the same. The liabilities associated with employees is quite high, and franchisors would likely fundamentally change (and certainly lower) the support they provided for franchisees.

Private Equity Investment

While is certainly not 100% true, I think it’s fair to characterize (especially historically) the franchising world as more toward the Mom and Pop side of the spectrum as opposed to “Wall Street.” Well over the past number of years, that trend seems to be swinging much more toward the other way. As a relatively safe, cash-flowing entity, private equity firms are swarming all over the space’s attractive businesses. There are, of course, the big players like Roark Capital and 3G Capital but there are also hundreds of other firms swarming around deals. From a legal perspective, this relatively sleepy space gets way more complex way quicker. Preparing your franchise for due diligence and eventually sale is a resource intensive process which most concepts are not ready for. That being said, the ones who do it well could be in for a nice valuation.

Disruptive Technologies

What industry these days isn’t subject to disruptive technology? Franchising is certainly starting to feel the effects. (I’d like to think it’s due to what we’re doing here at Metric, but I won’t go that far.) I’m confident in saying there is no group more unsettled by disruption than attorneys. Disruption means risk and uncertainty. We all know that this is not the specialty of the law. I sat in on a few different sessions where the attendees did the equivalent of throw up their hands when discussing how various cutting edge tech does and will affect their clients. While on the previous two topics, I believe that the legal community is well equipped to handle the implications, I wouldn’t necessarily say that with regard to tech. But they’re smart. I like their chances to figure it out!

President Trump

I’m just going to go ahead and say it. Given the current ideologies of the two major parties that operate at the Federal level, the Republican agenda is traditionally seen as being friendlier to franchisors than the Democratic one. (How’s that for walking a fine line?) With that in mind, many members of the franchise community have had pretty high hopes with a Republican president as well as majorities in both the House and Senate. However, we all know that the first few months of the Trump Presidency haven’t exactly been in line with many people’s expectations about anything. So what does that mean for franchises? Are they on the precipice of the most advantageous statutory and regulatory environment in the lives of the companies? Or will dysfunction in Washington lead to nothing but disappointment? Who knows! But either way, it’s certainly something the legal community can’t help but be obsessed with.

Hopefully this gave you at least a small idea of the vast array of issues facing franchises and their legal counterparts. On one hand, handling all these issues seems like a Herculean task. But on the other hand, I was nothing but impressed by the quality of the participants in the symposium.

I’ll leave you with a quote that pretty much sums up the attitude you need to approach this topic. It was used by one of the presenters tasked with running through a number of recent cases that affect franchise law. And I think he nailed it…

All right, guys, uh, listen. This is a blues riff in ‘B’, watch me for the changes, and try and keep up, okay?