The Service Employees International Union on Monday said it has asked the Federal Trade Commission to investigate the franchise industry, seeking information on how some of the world’s biggest franchise operators, including McDonald’s, set the terms of their business models.
The union, which has been pushing to boost the pay of low-wage fast-food workers, said the current structure gives too much power to franchisers on issues such as revenue-sharing, capital expenditures, and termination and renewal of contracts.
As a result, too many franchise owners are locked into a model that limits their control, said Scott Courtney, assistant to the president of SEIU. Franchisers, he said, have built low wages into the system and it’s not possible for a franchisee to increase wages they pay to workers without reforming the model.
“Franchisers like McDonald’s control virtually every aspect of the business operation at their franchise stores. They set the cost and effectively set the low wages paid throughout the industry,” Courtney said in a conference call with reporters. He added, “Reform of the system is important to ending poverty wages in the franchised food sector.”
McDonald’s, based in suburban Chicago, said in a statement that it has a strong working relationship with its 3,100 independent franchisees. McDonald’s said that it supports its franchisees and protects the brand by providing “optional resources” and setting quality standards that help franchisees operate successful businesses.
McDonald’s has long maintained that franchisees are independent owner-operators who set their own policies and wages, while adhering to corporate standards on food preparation and restaurant design.
“This action is driven by a union-financed campaign that has targeted the McDonald’s brand, and it’s ironic that this organization, that has spent more than $80 million during the past two years to disrupt operations of these same businessmen and women, is now appealing to them for an alliance,” the company said in its statement.
A spokesman for the FTC would not say whether the regulator will pursue an investigation.
The union’s request comes as McDonald’s and other restaurant operators are facing increasing pressure to raise wages. The wage issue will heat up again later this week: Thousands of protesters are expected to flock to McDonald’s headquarters on Wednesday and Thursday during its annual meeting with stockholders.
SEIU claims franchisers are using “abusive and predatory” practices toward franchisees and believes an FTC investigation would support that allegation. As an example, the union pointed to 10 franchisees in Puerto Rico who filed a complaint with the FTC in July.
José Quijano, a Puerto Rican franchise owner, said McDonald’s in 2007 granted Arcos Dorados, an investment company, rights to act as a franchiser of the Puerto Rican operators.
Arcos Dorados imposed its own rules on the franchisees, Quijano said. For example, he said, the sub-franchiser stopped contributing into a joint-advertising pool and has prohibited franchisees from selling products unless they join its advertising campaigns.
The union also named 7-Eleven and more than a dozen other franchisers in its petition to the FTC.
Jas Dhillon, who said that he has owned a 7-Eleven franchise in Los Angeles for 17 years, said on the call that 7-Eleven franchisees’ contracts are now 10 years, when they used to be 15. The corporation also is seeking a greater percentage of the franchised unit’s revenue, he said, but he did not provide specifics. When he first entered the business, there was an even revenue split, Dhillon said.
7-Eleven said in a statement it strives to support its franchisees and works side-by-side with them as they face regulatory issues across the country, including minimum-wage changes.
“There will always be challenges — but we have a successful history of working together when facing tough issues,” 7-Eleven said.
The company said it is currently engaged in litigation with less than 1 percent of its franchisees.
The union’s request comes as the National Labor Relations Board is considering expanding the definition of a joint employer. The franchise industry opposes an expanded definition, which would hold that franchisers have joint responsibility over a franchisee’s employees, including their wages and working conditions.