Wal-Mart’s wage hike can only go so far

Wal-Mart’s recent announcement that it planned to raise the minimum wage it pays its employees is a lesson in how large and successful corporations can make decisions for its workers versus how small franchise businesses can. 

As the owner of all of its stores, Wal-Mart can boost its wage floor whenever and however it wants. By next February, it will increase the salaries of more than a third of its workforce – 500,000 full-time and part-time associates – to at least $10 an hour and provide more predictable work schedules.

{mosads}But not every corporation can do that. Some media reports have correctly noted that Wal-Mart’s announcement may pressure quick service restaurant companies to raise their wages in order to compete for the best available workers. But this ignores a fundamental fact: Most restaurant brands do not own the stores that bear their names and don’t employ the workers at those locations.

Unlike Wal-Mart, thousands of businesses that operate as franchises don’t control the wages and hours of the people who work at the outlets that license their logos. They do mandate that brand standards and appearance of the products and services that carry their name be consistent and protect the consumer. But they leave other decisions to their franchisees, which are small businesses that operate locally and independently.

Contracts between franchisors and their franchisees detail this separation of responsibilities and decades of legal precedents have cemented them into common practice.

Franchising allows franchisees the chance to own their businesses, providing them a pathway to the many upsides of hard work that only entrepreneurship can bring. At the same time, franchisees don’t have to start from scratch and can build on a brand that has a proven record of success.

A wide range of businesses are franchises. The neighborhood Subway sandwich shop and the Sir Speedy print center, for example, are owned and operated by local small businesses that pay an initial franchise fee and ongoing royalty payments to use the trademarks.

These mom-and-pop shops have been a vital engine of the economic recovery, and they have been growing at a faster rate than non-franchises for the past five years. They are successful because they are autonomous and are close to the communities they proudly serve.  These are benefits worth preserving.

Still, government overreach threatens to take away these advantages. The National Labor Relations Board, backed by unions, are moving to declare franchisees as “joint employers” with the corporations who sell their trademarks, essentially putting them in the same category as Wal-Mart.

The reason is simple and cynical. If these brand companies are responsible for the workers and are deemed to own franchisees’ businesses for the purposes of labor responsibilities unions can organize thousands of separate, small businesses as one entity by collectively bargaining with the franchisor.

An opinion issued by the general counsel of the National Labor Relations Board last July would not only make major franchise companies legally liable for the workplace conditions at its franchise locations, but it would open up all businesses with independent and subcontractor relationships to expanded “joint employer” liability.

Under this scenario, the business world as we know it would be turned upside down and a Pandora’s box of special interest deal making would be opened by unelected Washington bureaucrats. The only winners would be labor unions and trial lawyers.

Wal-Mart’s minimum-wage decision will be widely discussed. But what should not be questioned is who has the right to make the decision to raise the pay of workers.

Small franchise businesses are the bedrock of the American economy. Their ability to maintain control of labor costs based on local market forces should be preserved.

Policymakers should protect this right, which has enabled small franchise businesses to thrive. Special interests who wish it were set up differently are battling legal precedent, widely-accepted law and just plain common sense.

Caldeira is the president and CEO of the International Franchise Association and a member of the Coalition to Save Local Businesses, which is fighting to preserve the current joint employer standard from being expanded by the National Labor Relations Board.