The future of franchising is bright

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With hoteliers keeping more of their hard-earned money to grow their businesses, growth prospects in 2018 are looking up.

by PETER CLERKIN

December saw two significant victories for the hospitality industry. First, on December 14, the National Labor Relations Board (NLRB) returned to the historical definition of joint employer by reversing the 2015 Browning-Ferris decision that upended the industries and small business owners that rely on the successful franchise business model. Second, the House and Senate passed a historic overhaul of the nation’s tax system with numerous provisions that prioritize small businesses and will allow for significant growth.

Many hoteliers will attest that the franchise business model is one of the quickest paths to realizing the American Dream. Tens of thousands of immigrants and minority business owners started successful franchises in the hotel industry. Building off a recognized brand and standards, hoteliers invest their own capital, apply their own business sense, hire their own employees, and develop their unique management and business strategies. Yet the NLRB’s 2015 decision to redefine joint employer sowed confusion and uncertainty in the industries that rely on this business model, for under the ruling in the Browning-Ferris case, the NLRB created an ambiguous direct or indirect control standard that could have allowed a hotel franchisor to be labeled as a joint employer with its independent mom-and-pop franchisee, who make all the hiring, firing, wage and supervisory decisions about their business.

The prospect of assuming responsibility for someone else’s employees, skyrocketing liability, and getting roped into countless disputes that arise with any small business put a damper on the industry’s incentive to franchise. More than one-third of hotel employees work for franchises, and the number of new jobs in the industry fell from 1.9 percent to 1.1 percent following the decision, according to a report by the American Action Forum.

Fortunately, in an unexpected move, the NLRB reversed the 2015 decision and returned to the historical definition of joint employer. Hoteliers and others who rely on a stable and clearly defined relationship with franchisors celebrated the decision and the bright red legal line that ensures franchisees control their own employees. While the decision was welcomed, AAHOA members continue to lobby Congress to change the law to a statutory definition of joint employer. Last year, the House of Representatives passed a bipartisan bill, H.R. 3441, the Save Local Business Act, which clearly defines an employer as one who directly controls their employees. This legislation will prevent future administrations from making politically-charged decisions, like the NLRB did in 2015, without first seeking congressional approval. The bill is being considered in the Senate, yet it is without a cosponsor. AAHOA members must continue to press the Senate to pass this measure to ensure the stability of the franchise business model is not dependent upon the political whims of unelected government panels.

With the NLRB’s decision to return to the historical joint employer definition, hoteliers are optimistic that franchisors who backed away from expansion and development projects will press forward with confidence. The timing of this decision coincides with new tax legislation that will be a boon to small business owners. Just one week after the ruling came down, the House and Senate passed the Tax Cuts and Jobs Act, which will allow hoteliers ample opportunity to reinvest in their businesses and new development.

The tax overhaul contains many of the provisions AAHOA members requested. The bill includes a 20 percent reduction for pass-throughs, the corporate rate is cut from 35 percent to 21 percent, and the AMT is eliminated for businesses. The bill preserves like-kind exchanges and allows full and immediate expensing of business assets. All these tax savings enable and encourage hoteliers to reinvest capital to expand their businesses, renovate properties, invest in new construction, increase wages and hire new employees as their businesses grow.

The passage of the tax bill also saw the top marginal tax rate slashed from 39.6 percent to 37 percent, and millions of Americans will see their taxes fall with the development of new brackets. Studies show that new discretionary income is spent disproportionally on travel as more families take to the road for vacations and business travel increases as companies grow – which is a boon to the hospitality industry.

With franchisors confident that the relationships with franchisees are clearly defined, hoteliers keeping more of their hard-earned money to grow their businesses, and more families spending their tax savings on travel, prospects for growth in 2018 are high.

Peter Clerkin is director of Government Affairs Communications for AAHOA and can be reached at peter@aahoa.com.

Photo credit: Kostenko Maxim/Shutterstock.com

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