Keep pulling the thread on Brian Kalachi.
The primary method for franchisees to increase profitability is by reducing labor costs.
A key appeal of the franchise model for franchisors is that workers at franchised locations are not their direct employees, which shields the franchisor from obligations like overtime and minimum wage laws.
The franchise structure creates a legal barrier where workers' rights are only enforceable against the franchisee, who has limited financial resources, while profits flow to the franchisor.
Early franchisors formed the International Franchise Association to lobby for legal changes because they acknowledged their business model was not fully legal under existing antitrust laws.
Until the mid-1970s, antitrust law prohibited franchisors like McDonald's from setting prices for products like the Big Mac or dictating franchisee territories.
Franchisors explicitly sought to achieve the benefits of vertical integration without the associated risks and liabilities of owning assets and employing workers.
Franchisors have successfully argued for "double-barrel immunity," claiming to be a single entity to avoid antitrust conspiracy charges while simultaneously claiming franchisees are separate companies to avoid labor law obligations.
McDonald's has historically used no-poaching agreements that require workers to get permission from their current franchisee owner before moving to another McDonald's location.
Most franchise contracts include a personal obligation for the franchisee to work in the business and often lack a corporate shield, exposing the franchisee's personal assets to liability.
Modern franchisors like McDonald's have more control over their operations than a mid-century vertically integrated company like U.S. Steel, due to data streams from POS systems and AI-powered worker surveillance.
The legal precedents established by franchisors in the 1960s and 1970s created the legal framework that enables the gig economy models of companies like Uber and Amazon.
Following a consent decree in Washington State that eliminated no-poach agreements for McDonald's and other chains, worker wages increased.