By Lydia Wheeler - 05/18/15 11:01 AM EDT
A major labor group is escalating its attacks on the fast-food industry, calling for a federal probe into “abusive and predatory” treatment of individual franchise owners at more than a dozen restaurant chains.
The Service Employees International Union (SEIU) filed a petition Monday with the Federal Trade Commission seeking an investigation of the alleged practices at 14 major chains, including McDonald’s, Wendy’s and Quiznos.
The action is the latest salvo in an increasingly nasty fight between unions and the fast-food industry.
Backed by the SEIU, fast-food workers have been striking for better wages since November 2012. Every few months, workers across the country take to the streets with picket signs to demand union rights and $15 per hour.
Now, the union is looking to broaden its accusations of bad behavior, and is asking the FTC to update regulations governing the franchise business model.
“We found another group of folks like the workers that are being abused by these big corporations,” said Scott Courtney, SEIU’s assistant to the president. “We’re trying to get FTC to write new rules for a system that the big guys have rigged.”
Franchised businesses employ an estimated 9.1 million people and have consistently added jobs faster than non-franchised businesses in recent years, according to the petition. But unlike traditional small businesses, the SEIU said there’s an imbalance of contractual power in the franchise business model that favors the corporate leadership and places individual operators in financially uncertain situations.
Courtney said franchise owners put up their life savings to open stores, work 60 to 80 hours a week and take home $60,000 a year, if they’re lucky.
The SEIU alleges in its petition that franchisors are retaliating against franchisee owners who criticize corporate business practices, unfairly terminating and refusing to renew franchise contracts, interfering when franchisees try to transfer or sell their stores and forcing franchisees to make unreasonably costly capital upgrades.
In its petition, the SEIU alleges that Quiznos, the financially troubled sandwich chain, disclosed sales data but not expenses or profitability figures to prospective franchisees in the 2000s to mask that 40 percent of its stores were failing to break even.
Quiznos could not immediately be reached for comment on Monday.
To demonstrate unreasonable capital expenditures, the SEIU pointed to the lawsuit Wendy’s filed against one of its franchisees in January. According to reports in the Baltimore Sun, the company sued because the franchisee refused to modernize its restaurants in Maryland, Virginia and the District of Columbia, remodels that the SEIU estimated would have cost $450,000 to $650,000 per store — about a third of a restaurant’s average annual revenue.
In a statement, Wendy’s spokesman Bob Bertini said the case is a legal matter that relates to a single franchisee in the Wendy’s system and does not reflect the company’s relationship with its broader franchise community.
“We value the important relationships we have with franchisees and our shared interests in growing the Wendy’s brand,” he said. “We pride ourselves on the many long-term franchise relationships we have, and we work to resolve franchisee questions or concerns about the brand vision through a variety of forums.”
The SEIU accuses McDonald’s of unfairly not renewing contracts and intervening in franchise sales.
One former franchisee, the group said, alleged in bankruptcy filings that McDonald’s repeatedly interfered with offers to buy his stores to force him to sell to the company’s preferred buyer at a significantly reduced price.
In a statement, McDonald’s said the SEIU is merely trying to add to its membership rolls.
“This action is driven by a union-financed campaign that has targeted the McDonald’s brand,” the company said. “And it’s ironic that this organization, that has spent more than $80 million during the past two years to disrupt operations of these same businessmen and women, is now appealing to them for an alliance.”
FTC spokesman Frank Dorman said the agency does not release information about investigations. Franchisees, however, are within the agency’s jurisdiction, he said, because the FTC enforces the franchise rule.
The rule dictates what information franchisors are required to give prospective franchisees, including the projected costs of entering into the business, the legal obligations of the parties, statistics on company-owned outlets and audited financial information.
The International Franchise Association said the FTC’s franchise rule has stood as a strong defense against abuses for almost 40 years.
“Once again, the Service Employees International Union is manufacturing a crisis as part of its increasingly expensive public relations campaign, now estimated to be more than $33 million, to destroy the time-tested franchise model in order to fill its own depleted membership,” IFA President and CEO Steve Caldeira, said in a statement Monday.
“Franchisees are highly satisfied, they have a high level of trust in their franchisors and they know they have remedies in places through their mutually-agreed upon contract, through the courts and through many state laws if and when issues may arise between two parties,” he added.
This story was updated at 7:21 p.m.