IFA CEO Speaks About Legislative, Regulatory Challenges

On the positive side, the compromise legislation yielded a number of valuable business tax incentives. The 50% bonus depreciation on purchases of qualified new equipment and Section 197 expensing of up to $500,000 for qualified small businesses were extended through 2013. Also extended for a year is the Work Opportunity Tax Credit, which subsidizes hiring veterans or individuals from underserved communities.

With the new tax rules in place, IFA is now focused on three priorities: comprehensive tax reform, health care, and labor relations. He said that a fourth issue, immigration reform, is rapidly gaining traction in Washington, DC, and will affect franchisors, too.

Tax Reform

Caldeira was a member of a group of small-business representatives who met last spring in the White House with Gene Sperling, director of the National Economic Council. Based on that meeting and subsequent contacts, Caldeira said that he believes that the tax concerns of small businesses finally are being taken into account. “I do not think that Congress has the stomach to raise taxes on small business,” he said.

Health Care

Much of the Patient Protection and Affordable Care Act, or Obamacare, is due to be implemented in 2014. “We are trying to ease the impact of implementation of the new health care laws,” he said. “We are seeking to make the rules more palatable for our members.”

Specifically, IFA supports changing the definition of full-time equivalent (“FTE”) workers, which is now calculated based on a 30-hour work week, and/or raising the threshold for companies covered by the law, which now sits at 50 FTEs. “All the rules haven't been promulgated on health care; the dialogue is open, so this is the time when we have a chance to make changes,” said Caldeira.

Labor Relations

As a prominent member of the Coalition for a Democratic Workplace, IFA has helped to neutralize legislation that proposed card check elections and shortened election periods. Yet, franchises should be concerned about what Caldeira termed “an activist NLRB.” Specifically, he cited “micro-unions,” which are small bargaining units carved out for workers in departments of large institutions. Originally allowed by the NLRB in 2011 for subgroups of workers in health care facilities, a micro-union has been approved for behind-the-counter workers at a car rental agency. Theoretically, two bartenders could form a union, said Caldeira.

Immigration

Guest workers are very important to many sectors of the franchising industry, Caldeira said, but IFA and its members also recognize “the need to secure our borders.” As part of immigration reform, IFA is pushing for policies that would expedite visas for workers.

Activism

Caldeira attributed IFA's political success in the last few years to increased contributions by franchisor and franchisee members, both financially and in their activism. The association's political action committee, FranPAC, contributed more than $1.23 million to candidates during the last election cycle, an increase of more than 70% from the previous cycle. Even more importantly, according to Caldeira, has been the willingness of the association's more than 1,100 franchisors and 12,200 franchisees to reach out to members of Congress about their concerns. “It's one thing for me, as a paid advocate, to go to a Congressional office,” said Caldeira. “But it's a totally different reception when a franchisee can go in and say that he has eight units, built up from a single store, and he employs 120 people. He's an actual small-business owner who can talk about the impact of laws on his ability to grow his business and create jobs.”

Beyond Washington, DC, state-level franchising issues are on the rise. One bill proposed in California last year, The Level Playing Field for Small Business Act of 2012, would have made terminations of franchisees substantially more difficult, increased franchisees' protections against encroachment, altered the dispute-resolution process and more (see FBLA, April 2012). Though defeated in a committee in the California Assembly, the bill was a wake-up call to franchisors, said Caldeira. “When you have a tough economy, you see this type of legislation crop up,” he said. “A lot of franchisees had a rough go of it, sometimes for good reason and sometimes through their own actions. This is the result.”

IFA has produced a two-pronged response. First, it's monitoring legislation at the state level more aggressively, utilizing its network of members across the nation. Second, it created in June 2012 the Franchise Relations Best Practices Task Force, which is reviewing the IFA Code of Ethics, educational programs focused on franchise relations, and mediation programs and services. The two working groups of the task force (one representing franchisors and one representing franchisees) will present their initial reports in February to the IFA board, and they will follow with final reports and recommendations in June.

Kevin Adler is the associate editor of FBLA. He can be contacted at [email protected].

SPECIAL OFFER for IFA Members: Click here to subscribe to Franchising Business & Law Alert at a special rate of $299.

A bruising political year has left the nation's business community skeptical about whether Congress and President Obama can resolve the nation's economic problems. While the franchising industry is slightly outperforming businesses overall in revenue growth and job creation, new legislation and fiscal uncertainty have created disincentives to invest in new units and hire additional employees, said Stephen J. Caldeira, president and CEO of the International Franchise Association.

Speaking on Jan. 16 in Chevy Chase, MD, at a luncheon sponsored by the Capital Area Franchise Association, Caldeira laid out IFA's legislative priorities for 2013, assessed IFA's impact on policy issues, and discussed business trends that are affecting the industry. “Our visibility on Capitol Hill has never been higher,” he said.

Caldeira called the fiscal cliff compromise a “mixed deal” for franchisors and franchisees that “prevented a catastrophe in financial markets.” On the negative side, since more than 80% of franchisees operate as pass-through entities, the rise in income tax rates for high-income-earners will affect some multi-unit operators, he said. Meanwhile, the return to a Social Security payroll tax rate of 6.2% could induce consumers to cut back on their purchases from any type of business.

On the positive side, the compromise legislation yielded a number of valuable business tax incentives. The 50% bonus depreciation on purchases of qualified new equipment and Section 197 expensing of up to $500,000 for qualified small businesses were extended through 2013. Also extended for a year is the Work Opportunity Tax Credit, which subsidizes hiring veterans or individuals from underserved communities.

With the new tax rules in place, IFA is now focused on three priorities: comprehensive tax reform, health care, and labor relations. He said that a fourth issue, immigration reform, is rapidly gaining traction in Washington, DC, and will affect franchisors, too.

Tax Reform

Caldeira was a member of a group of small-business representatives who met last spring in the White House with Gene Sperling, director of the National Economic Council. Based on that meeting and subsequent contacts, Caldeira said that he believes that the tax concerns of small businesses finally are being taken into account. “I do not think that Congress has the stomach to raise taxes on small business,” he said.

Health Care

Much of the Patient Protection and Affordable Care Act, or Obamacare, is due to be implemented in 2014. “We are trying to ease the impact of implementation of the new health care laws,” he said. “We are seeking to make the rules more palatable for our members.”

Specifically, IFA supports changing the definition of full-time equivalent (“FTE”) workers, which is now calculated based on a 30-hour work week, and/or raising the threshold for companies covered by the law, which now sits at 50 FTEs. “All the rules haven't been promulgated on health care; the dialogue is open, so this is the time when we have a chance to make changes,” said Caldeira.

Labor Relations

As a prominent member of the Coalition for a Democratic Workplace, IFA has helped to neutralize legislation that proposed card check elections and shortened election periods. Yet, franchises should be concerned about what Caldeira termed “an activist NLRB.” Specifically, he cited “micro-unions,” which are small bargaining units carved out for workers in departments of large institutions. Originally allowed by the NLRB in 2011 for subgroups of workers in health care facilities, a micro-union has been approved for behind-the-counter workers at a car rental agency. Theoretically, two bartenders could form a union, said Caldeira.

Immigration

Guest workers are very important to many sectors of the franchising industry, Caldeira said, but IFA and its members also recognize “the need to secure our borders.” As part of immigration reform, IFA is pushing for policies that would expedite visas for workers.

Activism

Caldeira attributed IFA's political success in the last few years to increased contributions by franchisor and franchisee members, both financially and in their activism. The association's political action committee, FranPAC, contributed more than $1.23 million to candidates during the last election cycle, an increase of more than 70% from the previous cycle. Even more importantly, according to Caldeira, has been the willingness of the association's more than 1,100 franchisors and 12,200 franchisees to reach out to members of Congress about their concerns. “It's one thing for me, as a paid advocate, to go to a Congressional office,” said Caldeira. “But it's a totally different reception when a franchisee can go in and say that he has eight units, built up from a single store, and he employs 120 people. He's an actual small-business owner who can talk about the impact of laws on his ability to grow his business and create jobs.”

Beyond Washington, DC, state-level franchising issues are on the rise. One bill proposed in California last year, The Level Playing Field for Small Business Act of 2012, would have made terminations of franchisees substantially more difficult, increased franchisees' protections against encroachment, altered the dispute-resolution process and more (see FBLA, April 2012). Though defeated in a committee in the California Assembly, the bill was a wake-up call to franchisors, said Caldeira. “When you have a tough economy, you see this type of legislation crop up,” he said. “A lot of franchisees had a rough go of it, sometimes for good reason and sometimes through their own actions. This is the result.”

IFA has produced a two-pronged response. First, it's monitoring legislation at the state level more aggressively, utilizing its network of members across the nation. Second, it created in June 2012 the Franchise Relations Best Practices Task Force, which is reviewing the IFA Code of Ethics, educational programs focused on franchise relations, and mediation programs and services. The two working groups of the task force (one representing franchisors and one representing franchisees) will present their initial reports in February to the IFA board, and they will follow with final reports and recommendations in June.

Kevin Adler is the associate editor of FBLA. He can be contacted at [email protected].

SPECIAL OFFER for IFA Members: Click here to subscribe to Franchising Business & Law Alert at a special rate of $299.