Your Hamburgers Are About to Get More Expensive. You Can Blame Washington A new rule called "joint employer" is about to change franchising. You'll be feeling it in your pocket.

By Jonathan Hoenig

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Your hamburger just got more expensive, because a bureaucrat in Washington is fiddling with labor laws.

It's sort of like The Butterfly Effect, the theory that, in such an interconnected world, a butterfly could flap its wings and trigger a catastrophic thunderstorm half a world away. But in this case, it's real, it's trackable, and possibly coming to a franchise near you — because a government agency is remaking labor laws, and it really will make hamburgers (and probably everything else) more expensive.

And that's just the start of the damage.

The National Labor Relations Board recently imposed what's known as the "Joint Employer Rule," which, among other things, makes a franchisor jointly responsible for a franchisee's labor practices. This means a franchisor (say, the McDonald's corporation) becomes legally responsible for employees that were hired and managed by a franchisee (say, whoever owns your local McDonald's). The rule is set to go into effect in February, unless it's stopped by lawsuit or regulation (both of which are pending). What would the impact of Joint Employer be? At best, experts say, it'll create financial burdens for everyone in franchising. At worst, some experts fear, it obliterates the franchising business model as we know it.

If you don't think such an edict imposes long lasting costs, consider the onions on your hamburger or french onion soup. Nearly 70 years ago, the government banned the trading of onion futures after two traders heavily bet against or "shorted" the market, pushing onion prices lower. That severely hurt farmers who then complained to Congress, and outlawed futures trading in onions from that point on. They had previously been the Chicago Mercantile Exchange's most actively traded contract.

To this day, futures contracts trade on corn, soybeans, wheat — and even snowfall! But they don't trade on onions, because the government regulation from 1955 still stands. Trading futures on onions is still illegal.

The result? Onion prices are significantly more volatile than even oil, regularly rising by 300% only to fall by 90% or more. This makes food costs higher than they normally would be for all of us.

The rule's impact for franchises, even in the short term, is even more significant. This rule change is likely to prompt a lot of confusion and unforeseen consequences, which will require hiring expensive attorneys to even understand how to comply. Business owners can't predict their potential costs or risk, given how new and disruptive this is.

Even more onerous, the regulation is expected to dramatically increase the unionization of franchise workforces. And by forcing one small business to accept unions, it's expected that organized labor will compel the parent companies to unionize all its workers system-wide.

For entrepreneurs, the result is significantly higher costs. The average employer's costs for a private worker is $39.75. For union members, it's $55.57, a 40% increase. Can a business expand its labor costs by 40% without any corresponding increase in productivity or income? The only way your local franchisee will survive is by hiking prices or cutting employee hours. Customers, business owners, and employees — the very constituents the regulation is intended to help — are all worse off.

This is a big deal. In 2022, the U.S. franchise sector accounted for more than 790,000 establishments and 8.4 million jobs, according to the International Franchise Association, including sectors far beyond fast food. Given their extensive use of contract employers, eldercare and hospitals, for example, will be significantly impacted. It's not a stretch to say people's lives will be significantly worse off.

When a butterfly flaps its wings and triggers a storm, it can be forgiven: It does not understand the repercussions of its actions. Government, however, should know better. And if it does not understand the consequences of its actions, it should at least be listening to the people who will bear the brunt of those consequences. According to a survey from the IFA, 74% of franchisees are highly concerned the rule will impact their business. That's a lot of people to listen to.

But the regulators aren't listening. They're plowing ahead, flapping their wings. Which means that, for the small businessperson, there's an ominous storm on the horizon.

Jonathan Hoenig is a professional investor and Fox New Contributor.

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