McDonald's and the NLRB - those who can do, those who can't regulate...

Franchising has been nothing short of a spectacular success for America. From restaurants to hotels to auto shops to plumbers, franchising generates hundreds of billions of dollars in revenue each year and employs millions of people across the country.

Modern franchising as we know it was created a century and a half ago by Isaac Singer, an inventor, innovator and the founder of the Singer Sewing Machine Co. He had figured out how to manufacture and sell his sewing machines in enormous quantities but he couldn’t service them across the vast country. So he created a franchising operation… whereby he would license the sale and repair of his machines to local merchants for a fee. They in turn could harness his name and brand to help market their business. It was a win-win situation for everyone involved, including the customer.

At its most basic level, franchising is a vehicle that allows for the replication of a successful business model. Let’s say you live in Richmond and you pour all of your money into opening a restaurant. Thankfully you become an immediate success. Seeking to build on your success you explore opening a second location. Borrowing the necessary money is unpalatable so you consider franchising. In franchising you let another person put up the money to start a store just like yours, but they own it. Typically they will pay you an upfront fee and a small (usually 3-5%) percentage of your revenue, and in return you give them the secrets to your success, rules about things like logos, signage, buildings, how the food must be cooked, the kinds products offered and various other product and marketing elements. And you handle much of the regional or national marketing. You have then become a franchisor and the person who opened and owns your brand's new unit is a franchisee.

Franchising is popular for a number of reasons. From a franchisee’s perspective they don’t have to invest the time and money that often goes into the hit or miss journey of finding what will work in the market. Someone else has already found the secret sauce. Not every franchisee is successful, but they have a greater chance of finding success than someone who is starting from scratch.

Franchisors like franchising because it gives them an opportunity to expand their brands and revenue without having to take up the management of or the capital expenses necessary to open a new unit. In addition, the success of any franchise is heavily dependent on local conditions such as real estate value, demographics, household incomes, traffic patterns to name just a few. Franchising gives companies a local partner who knows the local market far better than they probably could from across the country.

From the success of companies like McDonald's to Hilton Hotels to Jiffy Lube and thousands of others, franchising has been a spectacular success in the United States. Which makes one wonder why Barack Obama wants to destroy the model.

While the president hasn’t said that specifically, his leftists on the National Labor Relations Board have let it be known that that is their plan. At the end of June the general counsel of the NLRB announced that it plans to treat franchisors as “joint employers” as it relates to the unionizing rights for and wages paid to franchisee employees.

The goal of this announcement is to allow employees of franchisees to sue franchisors for the right to unionize and eventually negotiate on wages and benefits paid by their franchisees. This, despite the fact that “franchise contracts explicitly state that franchisees are independent and have complete authority over their own employees”. Labor costs are inherently local, and the familiarity of local partners with local conditions are a key to a restaurant company's success. That is one of the key foundations of franchising.

And so it goes. Just as the Community Organizer in Chief used to fund and train ACORN members to intimidate banks into making sub-prime loans in Illinois, his NLRB has decided that it will kneecap one of the most successful business structures in human history to advance the unionizing goals of the Communist leaning SEIU. The reality is, most franchisees are small businesses sweating to eke out profit margins of 10%. Those franchisees, with their tight margins and fierce competition can little afford the inefficiencies unions invariably introduce or the wage hikes that usually follow. By seeking to use the profitability of McDonald's the franchisor to drive the pay scales of it's 13,000 restaurants makes little sense. Should the franchisee in Live Oak, Florida be forced to pay the same wages paid by a franchisee in New York City where the cost of living is three times as high? If McDonald's is going to be forced to pay the wages for local franchisees shouldn't they then be entitled to a share of each unit's profits? Doesn't that defeat the whole purpose of franchising in the first place?

Not surprisingly, if this move by the progressives in the Obama administration survives the outcome will not be good for workers. While some may indeed earn a higher salary, it’s likely that many of them will lose their jobs as franchisees turn to computers and mechanization to reduce labor costs. Already there are machines in the market that can make hundreds of hamburgers per hour… and they do it without picketing, without taking cigarette breaks and without clamoring for higher wages.  So just as the know nothings who passed Obamacare cost employees jobs and others their health insurance, they will be doubling down on "joint employers" and it will be the workers themselves who are harmed.  

This move by the NLRB is simply more proof that the Obama administration is filled with people who have no idea how the world actually works. They hide behind the advice of left wing ivory tower academics and try to apply that advice to places where people have to actually produce to succeed. At a time when more businesses are failing than are starting and a record number of Americans are out of work, the last thing America or American workers need is for small businesses to take another body blow from the people in Washington who wouldn’t know how to run an actual business if their lives depended on it.

Barack Obama, Free Speech and Operation Choke Point... you'd better watch out, you might be next!

The Constitution guarantees every American the Freedom of Speech. The very first Amendment to the document says “Congress shall make no law… abridging the freedom of speech…” Of course, what is speech that it needs such protection? Speech is more than just saying what’s on your mind, regardless of how profound or silly it is. Speech is communication. That’s the speech that needed protection and was incorporated into the First Amendment. It was the communication of thoughts and ideas that needed protection. Speech needed protection because of the impact it could have on others. Kings don’t like their authority questioned and a freedom of speech could potentially rile up his subjects.

It is that very reason that our Founding Fathers sought to protect speech: For the people to keep the government in check.

So now, today, we are all lucky enough to have that freedom. But it’s not literally the words coming out of your mouth that need the protection. After all, you could stand in your shower and say whatever you want and no king or president would likely care. No, it’s your ability to communicate ideas to others that is real value and has the power to effect change.

Knowing that communication was such a central element of the Freedom of Speech, how would you feel if the government used its various powers to say “We’re not going to try and stop you from speaking, however we are going to threaten anyone who listens to you.” You’d be dumbfounded to say the least – no pun intended. That doesn’t make a bit of sense and it’s likely unconstitutional as it puts a dagger into the very heart of what free speech is about.

Thankfully the Obama administration has not yet decided to do quite that, yet… although the IRS scandal was certainly an attempt to accomplish the same thing. They are however using that very same tactic to shut down a wide range of legal businesses they don’t like. They are doing it to gun and ammunition dealers. They are doing it to the porn industry. They are doing it to payday lenders. They are doing it to Colorado marijuana retailers. In every one of these cases the administration is seeking to close down legal businesses by using its regulatory powers to stop banks from doing business with them. It’s called “Operation Choke Point” and it’s a joint effort by the Departments of Justice, Treasury and a handful of other agencies to effectively shut-down industries that the Obama administration doesn’t like.

How do they accomplish that? By contacting the banks servicing those businesses and “encouraging” them to stop doing business with the frowned upon businesses. Although the businesses are perfectly legal, the banks, recognizing that the price for not adhering to those “suggestions” would be a regulatory nightmare from which they might not be able to survive, acquiesce.

The problem however is that the government doesn’t have the legal right to coerce businesses out of business arbitrarily just because they don’t like them. That’s the whole point of the Constitution in the first place, particularly the 10th Amendment: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Government can not legally rule by executive fiat. But somehow Barack Obama thinks he can.

Maybe you support what he’s doing. Maybe you’re against gun ownership or porn. The question becomes however, what about the next president? Maybe he’s against different things, even if they are legal. Let’s say Rick Santorum becomes the next president and decides to use the Treasury Department to force banks to stop servicing abortion clinics and their employees. The 21st Amendment repealed prohibition, but what if the next president felt that thousands of innocent deaths annually due to drunk driving was too many and decided to use the Department of Agriculture to outlaw the growing of hops, barley and grapes? What if the next president decides that unions are a threat to the nation’s prosperity and uses Homeland Security to, while in line with the 1st Amendment, allow them to meet, but to limit them meeting in spaces no larger than a Starbucks? What if the next president thinks electric cars require too many resources to manufacture so he uses the Energy Department to tamp down demand by having power companies shut off electricity to owners’ homes? Where does it stop?

The whole point of the Constitution and the rule of law is that citizens know the bounds of what is legal and what is not and understand where government action is appropriate. Those who operate within those bounds should be free from arbitrary government coercion. If “Operation Choke Point” is allowed to stand then it changes the United States from a nation (government) of laws to a nation of men. That’s a big problem, and not only because we have statists like Barack Obama and Eric Holder controlling the reins of power.  More importantly,  it undermines the very foundation of the nation. Once that which defines legal becomes a moving target based on who’s in power, then no one can be secure in their businesses, their homes or anywhere in their lives. One of two things follow: anarchy or tyranny. People will choose to either do what they want regardless of what the law says or they will do what they think the people in power want, regardless of what the law says. One or the other will prevail. Neither of which is fertile ground for freedom or prosperity for anybody other than those in power.