Spread of franchises weakens unions

Many associate franchising with Mc Donald’s and other fast food chains. But this business model is spreading fast. Anything from airlines to undertakers can be run as franchises.

Ten years ago there were 182 franchises in Norway, run by 7,520 franchisees. Today there are 300 franchises and 20,000 franchisees. These businesses employ at least 70,000 people, according to De Facto, a knowledgebase for union members, which has studied franchising in Norwegian retailing.

“So far only three per cent of the Norwegian workforce works in franchises. But that number has doubled in five years. In the US the number is ten per cent”, says Roar Eilertsen, author of the study alongside Stein Stugu.

A threat to the Nordic model

They say franchising is a threat to the Nordic model, where trade unions and employers negotiate the terms for how the labour market should work, rather than relying on legislation. This model would not work without strong trade unions. "The number of union members within franchises is extremely low. Employees and their organisations have been stripped of all rights when it comes to influence and representation in relation to the owner of the franchise concept - who hold nearly all power within the franchise system”, reads the De Facto study ‘Power without responsibility - responsibility without power’.

“If we don’t take drastic action we will gradually get a two-tier labour market”, says Roar Eilertsen. 

“One with trade unions and normal employee rights, and one without. This will lead to increased pressure on those parts of the labour market which continue to regulate through mutual settlements.” 

In a franchise, the most important factor is the signed agreement. The franchisor has developed a business model and a brand which the franchisee - after agreeing a fee - can use. The franchisor often owns the property from where the business is run, and the franchisee normally has to buy the stock needed from the franchisor. Often the franchisor even looks after the franchisee’s finances.

Co-operative franchise?

Because each franchise can comprise hundreds of businesses, its size makes it difficult for independent businesses in the same trade to survive. The Norwegian retail industry is dominated by four major chains, which own 98 per cent of all shops. 

All except Coop, which belongs to the co-operative, are run more or less as franchises. It is probably only a question of time before Norway’s Coop also turns to franchising - in Sweden some 30 Coop stores are already being run as franchises. 

The franchising of a business makes it more difficult to carry out trade union work. The franchisee is employer to those who work there, but he or she has little influence over their terms of employment. The real power rests with the owner of the franchise concept, whom the employees have no chance to influence.  

“Franchises have turned into an unregulated ‘free-zone’, where the franchisee works as a buffer between the employees and those who have the real economic control”, says Roar Eilertsen.

No legislation on franchising

There is no legislation in Norway today which regulates franchising - unlike in the US and France. Sweden introduced a law on franchising in 2006. Like in other countries, the Swedish legislation mostly concerns what information the franchisor must provide to the franchisee. There is nothing about the rights of franchise employees. 

Norwegian retail industry employees are organised through the trade union Handel og Kontor (Retail and Office Work) 70 per cent of workers in the shops owned directly by the four, big retail chains enjoy collective labour agreements. In franchise shops, the number drops to 39 per cent. For a trade union in Norway to be able to demand the acceptance of a collective labour agreement, any business with more than 25 employees must have at least a 10 per cent trade union membership rate.

“There is also the unwritten rule that we don’t demand a collective labour agreement if we have trade union membership lower than 30 per cent in workplaces with less than ten employees”, says Margit Glomm, chief negotiator at Handel og Kontor.

Legal quest

Handel og Kontor welcomes franchisees as union members. 

“We have for a long time tried to legally determine whether a franchisee can be considered an employee, but no-one has so far wanted to go to court over this”, says Margit Glomm.

The union is now studying the De Facto publication.

“One of our suggestions is to give employees the same rights as employees in groups of companies, who are represented in the boardroom of the mother company. We also suggest the right for employees to meet and discuss trade union matters during working hours and at the cost of the employer”, says Roar Eilertsen.