By Michael H. Seid, CFE, Managing Director, MSA Worldwide

We’ve Seen This Movie Before

If you’ve been in franchising for any length of time, you already know how this story goes:

An academic or policy advocate with deep ties to organized labor publishes a sweeping indictment of the franchise model. The title is dramatic. The rhetoric is righteous. The footnotes are carefully curated to support predetermined conclusions. And when you strip away the scholarly packaging, the prescription is always the same: more regulation, more liability, and more leverage at the bargaining table for union organizers in an industry they have never been able to crack.

We saw it with David Weil in 2014 with his book The Fissured Workplace, which became the intellectual template for a generation of franchise critics. Appointed by President Obama to run the Labor Department’s Wage and Hour Division, Weil used that platform to aggressively advance joint-employer theories against franchise systems, arguing that by franchising and outsourcing core operations, corporations were engineering an escape hatch from their labor obligations.

At the time, I was a board member of the International Franchise Association (IFA). As an association and with the support of many members, the IFA spent significant dollars and time pushing back on the attack led by Dr. Weil. Weil’s arguments were clever — and wrong — and ultimately the courts, regulators, and legislators agreed with us. The joint-employer guidance championed by the Obama administration was eventually rescinded.

But despite its record of defeat, the argument has found a new champion in Brian Callaci, Chief Economist of the Open Markets Institute (OMI) with his new book Chains of Command: The Rise and Cruel Reign of the Franchise Economy. The title tells you everything you need to know about the author’s conclusions, especially when coupled with an analysis of his other writings and those on the OMI website. His book arrives at its conclusions before the analysis begins, then constructs a scholarly framework around them.

The OMI may present itself as an authoritative research body, but is actually a progressive antitrust advocacy group funded by major left-leaning foundations that have deep commitments to labor market regulation and economic restructuring. OMI’s alignment with organized labor is not subtle; its website articles and papers track directly with the legislative agenda of the Service Employees International Union (SEIU). Over the past decade or more the IFA has expended millions of dollars fighting SEIU campaigns to twist the meaning of franchising in order to have a platform from which to organize fast food and service workers. Expanding joint employer to the franchisor/franchisee relationship, which Mr. Callaci and OMI advocate, would solve SEIU’s problem.

What is clear from Mr. Callaci’s writings is that he is an advocate who works for an advocacy organization. His new book should be read accordingly — as an opinion piece, not as an independent peer-reviewed economic analysis. OMI is not a university, nor is it considered a research center. In addition, based on what I have gathered in my review, OMI does not appear to ascribe to any peer review process. What they produce are white papers, blog posts, and media commentary.

The fact that they are an advocacy group in alignment with big labor matters because franchising is not a simple system, and their articles and papers treat it as such. Franchising involves a contractual relationship, defined unit and system economics, a regulatory framework that varies by state and by country, and which is governed by nearly 300 years of legal precedent. Mr. Callaci’s sweeping claims about the “cruel reign” of a complex method of downstream distribution that covers over 300 distinct industries, without the discipline of peer review, and with seemingly little to no background in franchising, is not economic analysis but instead advocacy with footnotes.

Where Callaci’s Franchise Arguments Break Down

Brand Standards Are Not Employment Control — They Are Federal Law

Callaci’s central argument (borrowed from Weil) is that franchisors exercise near-total operational control over franchisees while using the legal structure of the franchise relationship to escape responsibility as employers. The conclusion he reaches from this is a rehashing of the joint employer argument; he appears to not understand what brand standards are, what they are not, or even why brand standards exist in a franchise relationship.

• For example, in a quick service restaurant a franchisor will generally require its franchisees to use approved suppliers, produce only the menu items allowed, and make the product based on the brand standards and protocols of the franchisor. Franchisees will also need to maintain their location to the standards set by the franchisor. But none of these standards direct the franchisor to manage day-to-day operations or dictate the franchisee’s employment decisions — precisely the criteria courts use to establish an employment relationship. All a franchisor does, by setting brand standards, is protect the brand — the promise a consumer relies on when they walk through a door with a recognizable name above it. Without that promise, there is no brand. Without the brand, the franchisee’s investment is worth nothing.

What Mr. Callaci conspicuously omits in his analysis is that a franchisor is obligated to enforce brand standards because doing so is a requirement under federal trademark law. Brand standards are not a discretionary decision by the franchisor.

• In 1946 Congress passed the Federal Trademark (Lanham) Act, which imposes an affirmative legal duty on any trademark licensor to maintain quality control over the use of its marks.
• A licensor (franchisor) that licenses its brand and then fails to monitor and enforce its standards (a blind license without quality oversight) risks losing its trademark protection entirely. If there is no quality control, there is no protectable trademark.
• Brand standards and the controls found in franchising exist because federal law requires them, and because every franchisee in the system has a direct financial stake in the trademark being protected.

Every competent franchise attorney in the country understands this, and every practitioner understands this. If Mr. Callaci does not understand even the basics of franchising, and its roots in Federal Trademark Law, he has no business writing authoritatively about how and why franchise systems are structured as they are. If he does understand it — and is choosing to ignore it — that is worse.

What a Franchise System That Works Actually Requires

Callaci’s framework describes what he believes franchise systems do to people. Let me describe what successful franchise systems actually require.

At MSA Worldwide we organize the fundamentals of a sustainable franchise system around five tenets: Consistent, Sustainable, Replicable, Culture, and Communication^(sm). A franchise system that fails on any one of them will eventually fail entirely — and when it does, it is the franchisee who suffers most. The franchisor can survive a failed concept. The franchisee who borrowed against their home cannot walk away as easily.

Consistency is the first tenet and the one most directly relevant to Callaci’s misreading of brand standards. The entire value proposition of franchising rests on the consumer receiving a predictable experience regardless of which location they visit or who owns it. Consistency is not a power play. It is the foundation of brand trust, and brand trust is what the franchisee paid for. Remove the standards that produce it and you do not liberate the franchisee — you destroy their investment.

Sustainability is the second tenet and where Callaci’s extractive-relationship thesis most clearly breaks down. A franchise system is sustainable only when both franchisor and franchisee succeed simultaneously and over time. The royalty structure, territory design, support obligations, and training systems must be calibrated so that franchisee profitability drives system growth and system investment drives franchisee success. These are not competing interests. They are the same interest. A franchisor that bleeds its franchisees does not build a system — it builds a litigation docket and a shrinking network.

Replicability is the third tenet. The franchise model works when a proven concept can be reliably reproduced across different operators, markets, and conditions. That requires training infrastructure, field support, supply chain management, and the transfer of institutional knowledge that only a well-structured system can deliver. The operational systems Callaci characterizes as instruments of control are, in practice, the accumulated institutional knowledge the franchisee paid for — hard-won lessons the franchisor spent years and often significant capital learning. Weaken them and you do not empower franchisees — you abandon them.

Culture is the fourth tenet. The best franchise systems are not just contractual arrangements — they are communities with shared values and genuine alignment of interest. That culture cannot be mandated. It has to be earned through fair dealing and honest communication over time. Callaci’s adversarial framing of the franchisor-franchisee relationship is not just analytically wrong; it is antithetical to what actually makes franchise systems endure.

Communication is the fifth tenet and the mechanism through which the others survive. The franchise relationship is long-term and requires continuous, honest, two-way communication to function. Franchisors that communicate only through compliance demands destroy trust. Franchisees that withhold operational reality deprive the system of the feedback it needs. The franchisee advisory councils, field support relationships, and performance data sharing that characterize well-run systems exist because the relationship requires them.

None of this appears in Callaci’s portrait of franchising. It cannot, because acknowledging it would require acknowledging that franchising, at its best, is a relationship — and that is not the argument Callaci is making.

No-Poach Clauses: A Legitimate Debate, Overstated Conclusions

Callaci has written more carefully on no-poach provisions — clauses in some franchise agreements that restrict franchisees from hiring workers away from other system locations. He argues they suppress wages by trapping workers within franchise networks. There is a legitimate debate here; some no-poach clauses are written more broadly than they need to be, and most have been removed through the efforts of the government relations team and leadership at the International Franchise Association.

But the conclusion that these provisions create captive, underpaid workforces does not hold up against the observable behavior of the labor market Callaci describes. Fast food and service workers change jobs constantly and annual turnover rates in these sectors are among the highest in the American economy. A crew member who cannot be hired by another location of the same brand can walk across the parking lot to a direct competitor — and frequently does.. The trapped workforce his theory requires simply is not there.

Franchisees Are Not Employees in Disguise

Perhaps the most condescending element of Callaci’s framework is his treatment of franchisees. He characterizes them — particularly in food service and personal services — as essentially employees who have been persuaded to think of themselves as business owners, but who are captive operators and entrepreneurs in name only.

For over four decades I have worked with franchisees and franchisors across every sector of franchising. I have seen single-unit operators who made their first franchise investment and benefited their family in ways they never imagined. I have also seen first-generation Americans who have built hundred-unit multi-branded enterprises and created wealth they could not have built any other way. Callaci’s portrait of franchising and franchisees is a caricature.

Franchisees hire and fire their own employees, negotiate their own leases, and make their own capital decisions. They build equity in businesses they can sell, expand, or pass on to their children. The relevant comparison is not between being a franchisee and being an employee. It is between being a franchisee and building an independent business from scratch. On that comparison, the training, the brand, the supply chain, the operations system, and the ongoing support that franchisors provide are not instruments of oppression. They are the product the franchisee paid for, and they are a meaningful reason franchisees succeed at the rate that the research conducted by the IFA shows.

The Consumer Nobody in This Argument Remembers

The consumer is almost entirely absent from Callaci’s framework. Franchise systems exist because consumers value reliability — consistent quality and a predictable experience across vastly different geographies and income levels. Franchising brings established brands and dependable service to rural communities, lower-income neighborhoods, and underserved markets that independent operators frequently bypass because the economics of a single location do not work.

The franchised restaurant in a food desert is not an instrument of exploitation. It is employment, affordable food, and frequently local ownership by a franchisee who built something real. That reality has no place in Callaci’s argument, because acknowledging it would complicate his narrative considerably. One only has to look at the commercial corridor around the Apollo Theatre in Harlem to understand the power of franchising to transform a community.

The Minimum Wage Argument That Does Not Add Up

Callaci is a vocal advocate for aggressive minimum wage increases. His public position is that the evidence is clear: businesses absorb the costs, consumers are not materially affected, new business formation continues, and lower-wage workers come out ahead. The debate, he argues, is essentially settled. But he is only telling half the story.

What has actually happened in the markets that moved furthest and fastest is not the benign adjustment his framework predicts. In California, following implementation of the $20 minimum wage for fast food workers, menu prices rose sharply within months, franchisees reduced worker hours to manage costs, new restaurant openings slowed, and franchisees who built their investment models on one set of labor cost assumptions found themselves operating under a fundamentally different set of economics. While the hourly wage went up, the number of hours for workers went down, as did their paychecks. Also, performance-based wage increases for experienced workers were effectively eliminated, because the compressed margin between entry-level and experienced pay left no room for merit advancement.

These are not abstractions. They are the experience of franchise owners — many of them minority and immigrant entrepreneurs for whom the franchise model was the most realistic path to ownership they could find. When labor cost assumptions shift dramatically and rapidly, the person who absorbs the impact is not the franchisor but the franchisee who signed the lease, gave the personal guarantee, and borrowed against their house. Callaci’s framework has no place for that person.

The Automation Consequence He Will Not Reckon With

The wave of self-service kiosks, automated ordering, and kitchen technology moving through the quick service sector is not a technology trend. It is a rational economic response to labor costs rising faster than menu prices can follow. When the cost of an employee rises beyond what a customer will absorb in price increases, operators invest in capital that does the job instead. This is not ideology — it is arithmetic.

The jobs replaced by that investment — first jobs for teenagers, for new workers building their first resume — are not coming back. They have been automated away. The people most harmed by their disappearance are the youngest, least credentialed, most economically vulnerable workers: exactly the people Callaci says he is trying to help. He does not grapple seriously with this because doing so would require acknowledging that a policy intended to benefit low-skilled, low-wage workers can produce outcomes that harm them — and that the franchise owner making the automation investment is not the villain in that story. They are someone trying to keep a viable business. The robot vacuuming the halls at major hotel brands used to be a low-skilled worker often working at their first job.

What a Minimum Wage Increase Actually Does to a Franchise Investment

There is one dimension of this issue that almost never appears in Callaci’s analysis: what aggressive minimum wage increases do to prospective franchisees evaluating an investment.

The financial performance information in a Franchise Disclosure Document (“FDD”) — the Item 19 disclosure — reflects historical system data. When labor cost assumptions shift significantly after that data was compiled, the investment model a prospective franchisee is evaluating no longer reflects the economics they will actually operate under. The gap between what an FDD’s historical performance data shows and what a new franchisee will actually experience in a high minimum wage market is real, growing, and disclosed nowhere in the document — and it falls hardest on first-generation owners with the least financial cushion.

Callaci frames minimum wage policy as a correction of power imbalances. What it does, in practice, is make franchise investment harder to underwrite, harder to finance, and harder to sustain — particularly for the entrepreneurs who have the most to gain from franchising and the least margin for error. That is not a progressive outcome.

What I Expect to Find in the Book

I have not yet read Chains of Command. But I have read enough of Callaci’s work, and enough of the OMI playbook, to anticipate its shape with reasonable confidence.

The book will argue that franchising is a mechanism by which large corporations have engineered a system that extracts value from franchisees and workers while escaping the legal obligations that should accompany that level of control. It will be written for a general audience — those who are unaware of the basics of the franchising model — and will lean heavily on narrative and anecdote. The genuine failures and abuses in franchising — which exist and deserve to be called out — will be presented as the norm rather than as deviations from it.

What his book will not do is meaningfully engage in a serious account of what franchising actually delivers to the people who succeed in it, to the workers they employ, or to the communities where the alternatives are worse. The book will be reviewed favorably in outlets that share OMI’s orientation, and endorsed by big labor unions like SEIU and some academics connected to left-leaning organizations. The promotional machinery will deliver it an audience larger than its analytical rigor would otherwise earn, and we in franchising will need to sustain the same level of human and financial effort we needed to employ in pointing out the fallacy in the Weil book.

What Franchising Owes This Moment

I want to be clear that I am not writing this analysis to defend franchising as if it has no problems, because it does. There are franchise systems that should never have been offered to the public; there are also franchisors who have treated their franchisees as revenue sources and have not provided the support that was expected. We also have a serious concern – which regulators are starting to address – in the practice of third-party franchise sellers, among other issues that professionals in franchising need to address. I have spent significant parts of my career saying so, often to audiences that did not want to hear it, and I am proud of the leadership of the International Franchise Association today for its commitment to identify the problems and their work to help find solutions. This is an exciting time to be in a leadership position at the IFA and overall franchising is an amazingly successful method of business ownership and wealth creation. I am proud to be a part of franchising.

But the answer to the real problems in franchising is not what Callaci and the Open Markets Institute are selling. Expanding the definition of joint employer does not protect franchisees or their workers — all it does is accelerate conversion to company-owned operations and eliminate the ownership opportunities that franchising creates. Restricting brand standards that the Lanham Act already requires does not empower franchisees — it destroys the brand equity they paid for.

The franchise industry has to engage this argument on its merits. That means being honest about where our own house is not in order — because critics will find the examples if we do not own them first. It means building the evidence base that demonstrates what franchising actually delivers: the franchisees who built real businesses, the workers who found real employment, the communities that received real investment. And it means being willing to say plainly that a sensationalistic book title is not economic analysis, that an advocacy organization’s chief economist is an advocate and not an expert, and that the people who will be hurt most by bad franchise policy are not the large franchisors who can absorb regulatory costs, but small business owners, immigrants, and first-generation entrepreneurs who saw franchising as the most realistic path to something of their own.

David Weil built the template, and over time his guidance was rescinded and his joint-employer theories rejected. Brian Callaci may be a more polished writer but is working from the same playbook — with the same big-labor backing and the same destination in mind: driving franchisee labor into union membership. We have been here before, and we know what it costs to fight it.

Those of us in franchising cannot afford complacency. We should not assume that passage of the American Franchise Act will settle the matter — because even with statutory clarity on joint employment, franchisor exposure will remain wherever a franchisee’s own conduct creates it. The more important work is the longer one: building and sustaining the evidence base that tells franchising’s actual story, engaging critics honestly where our own house is not in order, and refusing to cede the public argument to advocates whose conclusions were written before their research began. The franchise model has survived this challenge before. It will again — but only if the people who understand it are willing to make the case.