AS CONGRESS WEIGHS PRO ACT, US ECONOMIC RECOVERY HANGS IN THE BALANCE
By Robert Cresanti, IFA
The PRO Act is set to shake the foundation of the economic recovery — America’s franchise small businesses.
In early March, Congress will consider one of the most sweeping changes to US labor law in a generation when the Protecting the Right to Organize (PRO) Act heads to the House floor. Among its many provisions, the PRO Act would reclassify independent contractors as employees. That innocuous-sounding change would upend our modern economy, reaching far beyond Uber and Grubhub. It would shake the foundation of one of the key drivers of the economic recovery: America’s nearly 800,000 franchise businesses.
America’s nearly 800,000 franchise businesses. The hundreds of thousands of entrepreneurs who own franchise businesses across the US — from gyms to coffee shops to day care centers — would never consider themselves “employees” of the brands they operate, yet that is exactly how the PRO Act would classify them, along with the 7.6 million Americans they employ. This single act would decimate countless franchises and millions of jobs. To make matters worse, the PRO Act also contains an expanded joint employer standard and a dozen other ideas that combine together to make this legislation a grim reaper for the entire franchise model.
The PRO Act couldn’t come at a worse time. The franchise system is projected to help lead the U.S. economic recovery in 2021 by adding 20,000 new businesses and 800,000 new jobs. Many of these opportunities will go to the minority and disadvantaged Americans who were hurt most by the pandemic. Franchises are 31 percent minority owned, compared to 19 percent for non-franchised businesses. Millions of Americans without college degrees rely on franchises to find employment and career growth that aren’t available in other sectors. The PRO Act would cut off this source of opportunities.
Franchisees are proud to be opportunity generators and equality promoters, and they are determined to deliver of their own accord many of the very outcomes the PRO Act supports, such as higher wages. Unfortunately, the PRO Act would hastily and clumsily force these changes onto business owners with little warning — and combine them with a host of other toxic provisions that would overtake any good the law could do for workers.
This would be tragic as we begin to glimpse the light at the end of the COVID tunnel. We know what recovery and success look like. They look like new businesses moving into vacated storefronts, “for hire” signs hanging in windows, and real wages — not just stimulus checks — flowing into the accounts of American workers. President Biden and congressional Democrats campaigned on these outcomes, and franchises are poised to help deliver them.
The proliferation in franchise opportunities, which is projected in sectors such as residential services and real-estate, should come as no surprise. In the last four economic recoveries, the franchise model has been a leader in new business and job generation. It is designed around adaptability, resource-sharing, and support. It provides strength in numbers and name brand recognition that independent businesses don’t have.
Yet franchise success is not a foregone conclusion. The strength of the franchise system will be determined, in part, by Washington’s willingness to hold off and moderate harmful policy changes like the PRO Act. While this bill’s goal of improving worker outcomes is laudable, its most significant provisions cut deep enough to sink any good that could possibly come of it, plus drag the entire economy down with it.
We hope the legacy of this Congress and this Presidency will be of consensus-building on the toughest issues of our time, including labor law and the minimum wage. The franchise community will happily meet them at the table. In the meantime, we’ll focus on what we do best: leading the economic comeback and creating dynamic opportunities for all.
Robert Cresanti is the former president and CEO of the International Franchise Association.