NLRB’s Browning Ferris Decision: Bad, Bad News for Franchising

Earlier today, the National Labor Relations Board handed down its ruling in the Brown Ferris case. If you are a brokerage who belongs to a national franchise, like Coldwell Banker or Keller Williams or REMAX, or even a regional franchise, like Crye-Leike or Windermere, could I suggest that you take your mind off of Zillow for a moment and look into this?

This ruling has the potential to end the franchising business model completely. It will certainly change how companies look at the franchise model.

Joint Employer Standard Changed

Basically, the NLRB (AKA, “The Union Rep in Washington”) changed the standards under which a company could be held as a “joint employer” for labor-related issues. Before this ruling, the standard for several decades was that a company had to have “direct and immediate” control over employees to be considered an “employer”. After this ruling, as long as a company has the potential to affect pay and terms and working conditions, it’s a “joint employer” and has to deal with labor issues.

The impact on franchising — even real estate franchising — is immense.

From a Forbes story on the ruling:

“If this goes into effect then the franchiser has to step in and have a standard for hiring, human resources, payroll, everything,” said Jania Bailey, a board member of the International Franchising Association and chief executive of FranNet, a consulting firm that matches franchisees and franchisors. “It basically nullifies this independent business model.” [Emphasis mine]

Strong words, those. “Nullifies this independent business model” has such a ring of… what to call it… finality to it.

Impact on Real Estate Franchising?

Now, you might think this ruling doesn’t apply to them because real estate agents are 1099 Independent Contractors. I think the lawyers for the franchises — Realogy, KW, Remax, BHHS, etc. etc. — are probably taking a very, very close look for a few reasons.

1. The independent contractor model is under serious assault. I wrote about that at length here and here.

2. Real estate agents are not always considered as Independent Contractors in every single case. For example, California thinks of them as employees for the purpose of worker’s compensation. So if a Century 21 franchisee in California does something that runs afoul of the lovely, helpful bureaucrats at the California Labor and Workforce Agency… Century 21 the corporate parent in Madison, NJ will be dragged right into that mess.

3. Under the Brown Ferris ruling, if the franchise has any hiring standards for franchisees to follow, or could potentially possibly affect the pay or working conditions of actual employees (i.e., office managers, administrative staff), then it is likely going to be classified as a joint-employer. So, you know KW’s popular Recruit Select program? I think there’s a real question as to whether KWRI is now a “joint employer” since it influences hiring of employees (brokers and agents I know use Recruit Select to hire admin staff all the time). I know, it’s ridiculous, since Recruit Select is just a training program… but who knows how the NLRB will see things?

As long as real estate agents are considered Independent Contractors, real estate franchises are probably not going to overreact. However, at a minimum, now there’s yet another factor for the franchisers to consider when thinking about bringing in a brokerage as a franchisee.

As my friend James Dwiggins, CEO of the new startup franchise NextHome, put it:

This decision will have an affect on all franchisors, so hopefully Congress will reverse it, or the President will veto the decision. As our counsel put it this morning: “It will throw franchising into chaos”. As of this point, we’re not sure how all this will work, so regulation will have to follow spelling out how a franchisor can bind a franchisee to adhere to labor agreements negotiated with a franchisor and whether such negotiations will be on a unit by unit basis or cover the whole system.  The good news is that court cases are already being prepared to challenge the ruling so at this point, we’ll have to see how all this shakes out. Unfortunately, this is another example of the pendulum swinging too far the other way.

Oh, James, based in California as you are… just you wait until the California Labor and Workforce Agency — hand in hand with the Most Powerful Political Force in your state (that would be the unions, not the REALTORS) — get a hold of this ruling….

Anyhow, it’s very very early still. The decision was literally published today. Franchising lawyers have probably been following this for a while, and I suspect that we’ll see some new policies and announcements coming soon, even as the ruling is appealed to the courts, and so on and so forth.

But keep an eye out on this issue. This one could be an actual game changer, as opposed to all the bullshit “game changers” in our industry. (“Generate leads over Tinder! Gamechanger!”)

You may now return to your regularly scheduled Zillow obsessed programming.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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2 thoughts on “NLRB’s Browning Ferris Decision: Bad, Bad News for Franchising”

  1. I applaud the decision. The only true “Independent Contractors” are Independent sole Brokers and this decision will help differentiate this form of business entity that used to be much more common. Now the franchise model, which has presented the consumer with less choice and value, will be more and more the expensive way of doing business. Franchising brings a conformity and sameness that reinforces high commissions and high fees, which are already abusive to the consumer.
    The typical Broker-Salesperson and Broker-Broker Associate contract has potential anti-trust as well as employer-employee issues. I won’t even go into the team/in-house TC mess. The poor consumer doesn’t realize that the salesperson he thinks he’s hiring is not even his true agent. He doesn’t know that he won’t ever meet his real agent -the broker, and that the big name he’s hiring may live two time zones away. Too much real estate by proxy. Too much real estate by remote control. And too many third-party companies making real estate expensive and adding costs for the consumer. I applaud the decision because Broker-Direct real estate will make a comeback. Consumers will see the difference in value once the franchises have to raise commissions and charge ridiculous fees to keep their inflated bottom line and pay their Wall Street Masters.

  2. Rob,

    I read this and the Forbes piece. Couple of thoughts here. This case did not involve traditional franchisors. It involved a contract staffing company. Just that business model relationship is enough to distinguish from franchising. A bigger differentiation is, however, that real estate franchising and “traditional” franchise models are totally different. Traditional franchises like McDonalds and my fav, Dunkin’ Donuts, are business model franchises that specify to a “T” how to run the business. As you know, real estate is different and much more akin to a trademark license arrangement vs. a traditional business model franchise. This is why you can go into a DD shop anywhere in the country and taste the same food while your experience with two (insert name here) real estate franchises would likely produce very different experiences.

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