Republican control in Washington, D.C., next year has the International Franchise Association optimistic about federal regulatory action.
At the state level, though, the IFA expects some legislative battles. In blue and purple states, IFA officials anticipate bills and agency moves that could negatively impact the franchise community.
On Thursday, the IFA held a webinar to cover challenges in a few states, including California, Arizona and Georgia. With the latter two, IFA Senior Vice President of State and Local Government Relations Jeff Hanscom said both states have had legislators introduce bills that interfere with franchise contracts.
The IFA typically doesn’t want the government meddling too much with franchise agreements, IFA Chief Advocacy Officer Michael Layman said in an interview.
“In the last several years, we’ve seen efforts to change how franchise agreement terms, such as successorships, terminations and renewals, can be written at the state level,” Layman said. “We generally don’t believe that heavy-handed government involvement is very good at writing private contacts in the franchise space. Certainly not in undermining well-established contracts between private parties.”
Layman said California will likely come into play again, as it moved forward with several pieces of legislation recently that impact franchising. As an example, Layman cited the minimum wage increase to $20 for large restaurant brands.
“Franchise opponents in organized labor will view Republican-controlled Washington as a dead-end for their harmful policies in the years ahead,” Layman said. “So, some of these interests are likely to take their agenda to the states.”
Michael Layman, senior vice president of government relations and public affairs for the International Franchise Association
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The outlook is more promising with the federal government, Layman said, as there is likely to be “regulatory clarity and tax certainty” during President-elect Donald Trump’s second term.
“Franchise owners are excited about what will come from Washington in the coming years,” Layman said. “It’s something businesses of all stripes are probably looking forward to. There are provisions in the Tax Cuts and Jobs Act being extended next year, which can be a huge boon for franchisors and franchisees.”
Layman said this is especially true with the act’s business income deduction, which allows qualified business owners to deduct up to 20 percent of their net income from taxes, reducing their effective rate.
While the IFA is predicting smooth outcomes in Washington, it doesn’t its mean efforts at the federal level will be reduced. The association put out a list of governmental priorities it will be pursing in 2025, including a push to codify the joint employer standard.
In its policy paper, the IFA stated its support of a standard that requires direct control of narrowly defined essential terms and conditions of employment. The goal of the association is to preserve the autonomy of franchisees to independently manage employee relationships.
The pursuit of such action is likely in response to the National Labor Relations Board releasing a new joint employer rule in 2023, which would have increased the likelihood of franchisors being held liable with their franchisees for labor violations. The NLRB’s rule was later blocked in federal court.
According to the policy statement, the IFA will support policies that expand eligibility for franchise businesses to deduct expenses from their tax obligations. Additionally, the IFA will pull for modernizing the Federal Trade Commission’s Franchise Rule to increase transparency in the franchise sales process and strengthen disclosure requirements.