Sadly, I submit this column on franchising for the late Rupert Barkoff, my mentor in franchising, and the author of this column for the New York Law Journal for many years. For the last six years I had the privilege to work with and learn franchise law from Rupert, and we periodically debated the merits of franchising, and whether, as the title of this article asks, franchising was the best way for brand owners to do business.

Rupert was a true believer in franchising and its benefits, and indeed before he passed became involved in several restaurant ventures that I am sure he hoped would eventually franchise. But, in Rupert's Nov. 17, 2017 NYLJ article titled "Joint Employer Liability in the United States and Australia," Rupert discussed several recent impediments to the franchise model including the unexpected rise of joint employer liability and misclassification actions for franchisors, and new state laws, e.g., CA-AB5 California, that appeared to target franchising and conspire to reduce or eliminate franchise activity. Notably, at the end of Rupert's 2017 article he posed whether "it may be time to reflect on the franchise model and ask if there is a better way to do business." It is now 2019, and I am confident Rupert would deem this inquiry very appropriate in light of the current state of affairs in franchising.

During the last two years, franchisors have been facing courts and legislatures that appear to be increasingly hostile to franchising, as greater numbers of franchisor-franchisee relationships are being deemed to be franchisor-employee relationships. This may subject franchisors to significant financial exposure for joint employer liability and/or wage and hour liability claims, not to mention union threats and increased labor costs. The franchise model was supposed to enable franchisors to avoid these liabilities and costs, and facilitate growth of their branded businesses faster and more cost effectively. Franchisees purportedly did not want to be employees—they wanted a chance to own and operate their own businesses and make money. This column is not large enough to provide a full history of how we got here, and where we are, but below is a summary of some of the most serious recent challenges to the franchise business model.

Direct vs. Indirect Control

Until 2015, the National Labor Relations Board (NLRB) previously required "direct control" over a franchisee's employees for a franchisor to be found a "joint employer," and hence be liable for the acts/omissions of the franchisee's employees. Generally, direct control meant a franchisor was directly involved in day-to-day franchisee operations, e.g., hiring, firing, setting hours, payroll, etc. Then a 2015 NLRB decision, Browning-Ferris Industries, 362 NLRB No. 186, changed that standard to "indirect control," making it easier to find franchisor joint employer liability. This decision was widely viewed as a direct attack on the franchisor-franchisee relationship.