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Are Recent Regulations Dooming Franchising?
Despite the obstacles that franchise businesses have faced in recent years, franchising has persevered and continues to stand strong and grow. The International Franchise Association (IFA), in its most recent 2024 Franchising Economic Outlook released in February (2024 Franchising Economic Outlook), found that franchising in 2023 exceeded projections and expanded by about 2.2% to reach a total of over 806,000 franchise establishments, approximately 18,000 more than in 2022. Franchising's contribution to the overall 2023 economy remained stable at 2.9% (over $850B). Franchise employment in 2023 also increased 2.9%, with an estimated 200,000+ jobs.
For 2024, the IFA report indicates that all these franchise industry metrics are expected to increase, and notably, franchise employment is expected to continue to grow by 2.6% adding over 200,000 jobs to the economy. So, franchise businesses have contended well with the challenges created by legal regulation, high inflation, labor shortages and, to a lesser extent, supply chain issues.
In 2024, however, franchising may need to overcome and work around the recent government regulation that goes to the very heart of the franchising relationship and the way franchise businesses operate, including whether franchisors can be considered employers of franchisees and franchisee employees. These laws and regulations could have significant negative ramifications from a labor and employment liability aspect and put the franchise model at risk.
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