Studies the fast food and hotel/motel industries to examine how the business practices of these industries are related to their compliance with the Fair Labor Standards Act.
“This study examines the relationship between compliance with the Fair Labor Standards Act - the federal law regulating basic labor standards including the minimum wage, overtime, and child labor for the workforce - and a set of business practices found in low wage industries: branding, franchising, and third-party management contracting. Through a study of two industries that draw on these practices—the limited service segment of the eating and drinking sector (‘fast food’) and the hotel/motel industry—[the study] find[s] that these practices have significant effects on workplace compliance with labor standards” (p.1). The report also discusses the various academic and applied research impacts based on the results of this study. (Abstractor: Author and Website Staff)

Major Findings & Recommendations

• “Franchising affects compliance with labor standards. Within branded establishments using franchising (e.g. fast food restaurants like Burger King), establishments that are directly owned by the brand (company-owned) have higher rates of compliance than comparable outlets that are franchised owned. • Third party management of properties is widespread and adversely affects compliance. Third party management of enterprises, where an establishment/workplace is owned by one entity and managed by another, creates complicated agency relationships, further obfuscating the employer/employee relationship. • Brands tend to have better compliance than non-branded businesses. Branding is a central component of firm strategy and profitability. This creates significant incentives to protect brand equity relative to businesses without brands (hotel/motel study). The interest of brands in quality and reputation (their core competency) [leads] to differences in relative compliance and can improve the ability to improve compliance at the workplace level. • Deterrence effects are amplified in industry structures with branding/franchising. General deterrence—the impact of investigations on one business entity on the behavior of other entities in related industries, geographic areas, or competitive markets—seems to be enhanced through franchise relationships. • Fissured employment is a more general characteristic of modern employment. Franchising and third-party management represent two types of a broader set of changes in employment relationships. These practices—which we call “fissured employment”—involve three linked components: a focus of lead firms (hotel brands; fast food franchisors in this set of studies) on core competencies; shifting of employment relationships to other businesses operating in more competitive environments with access to a large pool of potential businesses; and organizational standards, monitoring, and incentives to make the first two pieces of the recipe work together. • Enforcement of workplace laws must recognize the changed employment relationship documented by this research. Franchising, third party management, and the spread of fissured employment creates challenges for workplace policies that were built assuming simpler and more direct relationships and definitions of employers and employees” (p.1-2). (Abstractor: Author)