Attendees at the International Franchise Expo shopped for small businesses in a box, in a time of mounting threats. (Lydia DePillis/The Washington Post)

NEW YORK CITY — On Thursday, in the middle of a vast convention hall floor in the bowels of the Javits Center, Pedro Gallegos stood at a podium and described how he had arrived in the United States from his native Ecuador—carrying just two suitcases. Within a few years, he and his wife were able to invest in a moving franchise called Two Men and a Truck. They’ve gone from two trucks to ten in San Diego, and have earned themselves a spot in the middle class.

"I am passionate about franchising because of the opportunities it has offered my family,” Gallegos said, in front of a small group at the International Franchise Expo, a trade show where prospective business owners can shop for new opportunities. The little enterprise might look like the arm of a giant company, but Gallegos says that really, he’s a successful young entrepreneur like anyone else.

But now, Gallegos said, there’s a fight in Washington that could change how he runs his business day-to-day. And it’s all because of a different company that has nothing to do with his: McDonald’s.

There’s a basic question before the Labor Relations Board right now that affects franchise owners like Gallegos around the country. If a McDonald’s worker has his or her rights violated, who’s liable? The franchise owner running the McDonald’s? Or the executives at McDonald’s headquarters, or both? The NLRB’s general counsel says it’s McDonald’s responsibility and that companies like it should be treated as “joint employers.”

If that’s true, then suddenly a franchise owner like Gallegos is going to start hearing a lot more from the people running the home office for Two Men and a Truck—and Gallegos and his wife say they would start losing their independence as small business owners.

“We’re in it for the adventure,” said Alicia Sorber Gallegos, whose grandmother founded the company, and who currently sits on the board. “We don’t want to be glorified employees."

Small franchise owners like the Gallegos are getting swept up in a national push for improving how employees at places like McDonald’s are treated--and in particular, how much they get paid. New minimum wage mandates cropping up all over the country—some of which are aimed squarely at chains, rather than independent businesses—are trying to make $15 an hour an industry norm.

The franchise system status quo is also under attack by the powerful Service Employees International Union, which has argued that workers can’t effectively bargain with their employer if the franchisor actually calls the shots (a philosophy also espoused by David Weil, a former Harvard professor who now has a high-up position at the Department of Labor). That’s why it brought the case against McDonald’s that the the National Labor Relations Board may use to decide that the corporate office has enough control over working conditions on the shop floor to be responsible for those employees alongside the franchise owners.

If it does, that could smooth the road towards unionization in the fast food industry by bolstering the legal argument that a company like McDonald’s or Two Men and a Truck is the employer of all the workers at the individual franchises, making the bargaining unit for the workers much broader and more powerful. (It's worth noting, however, that only franchisors that truly exert control over working conditions could be considered a joint employer—the NLRB ruled that Freshii, for example, was not.)

At the same time, with the SEIU’s support, some franchisees are pushing bills in state legislatures that would give them more rights -- making it harder for a franchisor to terminate a contract, for example. A similar effort could crop up on the federal level, with Rep. Keith Ellison (D-Minn.) preparing a bill that would take on this very issue. Franchisors, represented by the International Franchise Association, say that would just mean fewer opportunities for people to own their own businesses.

“They’re trying to drive a wedge between franchisors and franchisees,” says Matt Haller, a senior vice president with the IFA. “It’s a death-by-1,000-cuts strategy.” In a presentation to franchisees about regulatory threats, Haller’s PowerPoint calls out the SEIU, the NLRB, and the Department of Labor’s David Weil as the primary culprits.

Worried about the onslaught of potential change, the IFA is one year into a campaign to get its membership engaged in protecting the status quo, from educating state lawmakers to testifying on Capitol Hill. They’re reaching out to institutions representing people of color, like the NAACP and the Hispanic Chamber of Commerce, who make up a disproportionate number of franchise owners. And through a new website, they’re trying to create the impression that franchises aren’t one huge corporation with tentacles everywhere, but rather small businesses just like your local mom ’n pop.


Matt Haller of the International Franchise Association makes a presentation about threats to the franchise business model. (Lydia DePillis/The Washington Post)

“The franchise business model is a victim of its own success,” said Haller. "We’ve perfected uniformity, so consumers don’t differentiate who’s making those decisions at the local level. They get the same experience, so they don’t know that it’s a local business.”

Wandering the floor of the International Franchise Expo, with booths ranging from a new Korean concept offering cream puffs to giant trucks dispensing pretzels and jerky, it’s possible to find a range of opinions on the rash of proposals for a $15 minimum wage. But everyone seemed deeply troubled by the idea of franchisors being treated as joint employers with their franchisees.

Take Gary Occhiogrosso, the president of a conglomerate that owns several fast food brands. On the first day of the expo, he was representing Naked Chicken, and munched on a conical pizza invention being hawked by the fast-casual chain one booth over. He says he’s actually in favor of raising minimum wages, as long as they’re done across-the-board, rather than in one industry or another.

But making franchisors responsible for everything their franchisees do?

“It’s extortion,”  Occhiogrosso says. "They’re combining the franchisor with the franchisee, because the franchisor—McDonald’s—has the money.”

“It’s extortion. They’re combining the franchisor with the franchisee, because the franchisor—McDonald’s—has the money.”

— Gary Occhiogrosso

Others aren’t so sanguine about minimum wage hikes sweeping the nation. The average ZIPS Dry Cleaner, for example, employs between 15 and 20 people. Most of them are low paid, and a wage increase would hit the business’ bottom line. “We’re worried sick about it,” said Andy Cucchiara, ZIPS’ vice president for franchise development. “They want people to make $15 an hour, but they want their shirt cleaned for $1.99."

Cucchiara does acknowledge that the chain, through its economies of scale, might be able to better absorb wage hikes than an independent dry cleaner. That’s what’s allowed the franchise industry to grow faster than the rest of retail through the recession, and why some local jurisdictions—like Seattle—are treating franchises like large businesses, rather than independents, for the purposes of new wage mandates (the International Franchise Association sued Seattle for that reason, so far unsuccessfully).

Still, Cucchiara argues that’s a virtue of the franchise industry, which might be vaporized if the NLRB decides that a franchisor is an employer too.

“I think that’s what’s being lost by a bunch of these lobby groups,” Cucchiara says, referring to the labor unions. “It’s absolutely going to destroy a lot of American dreams.”

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