The Biden Administration and its impact on franchising in 2021

President Biden’s administration and a 50/50 Senate will impact the franchise industry in a number of significant ways. Below are certain business insights on what to expect in 2021:

Impact on Joint Employer Standard and National Labor Relations Board

• President Biden fired Peter Robb and Alice Stock, general counsel and deputy general counsel for the NLRB shortly after the beginning of his term, breaking with precedent of allowing counsel to serve out their original appointments. This opened the door for new appointments that are more aligned with the Biden administration.
   
• The Biden administration is expected to advocate to reverse the current joint employer standard and return the Browning-Ferris joint employer standard (establishing two businesses as joint employers if a business exhibits indirect control or the ability to exert control over employees), established during the Obama administration.
  • A relaxed joint employer standard may encourage independent contractors (like Uber drivers, etc.) to bargain further with their direct employers.
     
• The Biden administration may push for the adoption of an “ABC” test for independent contractors that was advocated for by Pete Buttigieg during his presidential campaign, and this standard may impact the joint employer standard as well. The “ABC” test would examine whether or not an individual is an independent contractor by evaluating whether the individual is A) free from control and direction of the hiring entity; B) performs work outside of the usual course of business; and C) is otherwise engaged in an independently established trade or business.  

 

The Raise the Wage Act of 2021

The Raise the Wage Act of 2021 would:

• Gradually raise the federal minimum wage from $7.25 to $15 by 2025
• Index future increases in the federal minimum wage to median wage growth to ensure the value of minimum wage does not once again erode over time
• Guarantee tipped workers are paid at least the full federal minimum wage by phasing out the subminimum wage for tipped workers, which will ensure decent, consistent pay without eliminating tips
• Guarantee teen workers are paid at least the full federal minimum wage by phasing out the rarely used subminimum wage for youth workers
• End subminimum wage certificates for workers with disabilities to provide opportunities for workers with disabilities to be competitively employed and participate more fully in their communities

President Biden’s push to increase the federal minimum wage to $15 an hour faces significant hurdles in Congress because of strong opposition from Republicans. Below are arguments for and against the minimum wage hike:

Arguments for the $15 an hour minimum wage increase:

• Boosts productivity and hourly employee moral
• Reduces income inequality and provides an incentive to work
• Spurs economic growth by giving workers more to spend
• Promotes education and self-improvement
• Improves employee retention and decreases employee turnover

Arguments against the $15 an hour minimum wage increase:

• Small business owners can neither afford nor pass on to consumers
• Increased labor costs will lead to hiring fewer workers
• Penalizes labor-intensive companies and unfairly benefits capital-intensive companies
• Will increase unemployment
• Will force companies to shut their doors and close

Coronavirus Response and Relief Supplemental Appropriations Act

While it was signed into law under the prior administration, many aspects of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) will feature prominently in the early months of President Biden’s administration and will have a significant impact on franchisees, especially in the hospitality and restaurant industries. The CRRSAA was enacted to, among other things, provide more than $284 billion to the U.S. Small Business Association (SBA) for “first draw” and “second draw” forgivable small business loans under the Payroll Protection Program (PPP), which was originally implemented under the CARES Act back in March 2020.  

Period:  The application period for “second draw” PPP loans runs from January 13, 2021 until March 31, 2021.   

Eligibility:  A company is eligible for a “second draw” loan if the business:

• Received a “first draw” PPP loan
• Has used or will use the full amount of the “first draw” loan only for authorized uses
• Has no more than 300 employees
• Can demonstrate at least a 25% reduction in gross receipts between one fiscal quarter in 2019 and the same fiscal quarter in 2020 (e.g., a business received 25 percent less gross receipts in Q4 2020 than they did in Q4 2019). It is not necessary to demonstrate a 25% reduction in gross receipts for the entire fiscal year.

Uses: “Second draw” PPP loans can be used to help fund payroll costs, including employee benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

Maximum Loan Amount: For most borrowers, the maximum loan amount of a “second draw” PPP loan is 2.5 times average monthly 2019 or 2020 payroll costs up to $2 million.

Increased Assistance for Accommodation and Food Services Businesses: For businesses in the hospitality industry, such as restaurants and hotels that operate under the North American Industry Classification System (NAICS) code starting with the number 72, the loan amount calculation is different. These companies must multiply their average monthly payroll by 3.5 times, up to $2 million, to hit their total loan amount. The SBA provides a worksheet to assist with this calculation. 

Full Forgiveness Terms: “Second draw” PPP loans made to eligible borrowers qualify for full loan forgiveness if during the eight to 24-week covered period following loan disbursement:

• Employee and compensation levels are maintained in the same manner as required for the “first draw” PPP loan
• The loan proceeds are spent on payroll costs and other eligible expenses
• At least 60 percent of the proceeds are spent on payroll costs

How to Apply: Borrowers can apply for a “second draw” PPP through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. All “second draw” PPP loans will have the same terms regardless of lender or borrower.

Access for Smaller Enterprises: At least $25 billion from the CRRSAA is being set aside for “second draw” PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate-income neighborhoods.

Consumer Protection

With the nomination of Rohit Chopra as the director of the Consumer Financial Protection Bureau, President Biden has tapped a progressive ally of Senator Elizabeth Warren to lead the agency she conceived and championed. Mr. Chopra currently serves as a commissioner of the Federal Trade Commission where he has actively advocated to promote a fair and fully-functioning marketplace through vigorous agency enforcement of laws that protect families and businesses against lawbreaking enterprises.

Mr. Chopra has noted that the franchise industry has a diverse base of ownership in the U.S. The most recent census data shows that 30% of franchises are minority owned. In a September 2020, interview on Squawk Box with Kate Rogers, Mr. Chopra noted the importance of fairness in the relationships between franchisors and franchisees so that the industry can continue to grow and provide opportunities for individuals to own their own businesses.