Jagruti Panwala is a Pennsylvania hotelier and a board member of the Asian American Hotel Owners Association, one of several business groups pushing Congress to rein in the National Labor Relations Board, the federal agency that enforces labor laws.
The groups are particularly worried about the board’s complaint against McDonald’s Corp., charging that it is a “joint employer” with its franchisees and therefore legally liable for labor violations at them. The complaint reversed a long-held board standard that a franchiser and franchisee were legally separate entities. The case is ongoing.
Panwala, who was born in Gujarat, India, warned that changing the rule could undermine a business model that made the American dream possible for her group’s members and others across the country. She discussed the importance of franchising to minorities and her group’s concerns about the potential rule change with the Washington Examiner. The following is an edited transcript of the conversation.
Washington Examiner: Could you give a little bit of background about the Asian American Hotel Owners Association?
Panwala: There are about 14,500 members of the association. This membership represents almost 50 percent of all of the hotels in the United States. The amount of jobs created by this membership is about 600,000 with a payroll of about $10 billion.
Examiner: For people who don’t understand it, how does franchising work? Most people probably assume all Marriott hotels, for example, are just branches owned by the corporation.
Panwala: I’ll give you my example: My husband and I bought a hotel when I was 22 with money borrowed from our families. Once we bought the property we received an offer from Choice Hotels [one of the largest hotel franchisers] and converted our hotel into a Comfort Inn. We pay them a fee to use their brand, but as far as all of the financing, the building of the property or any of the other stuff, it is all on somebody like me. I am making all of the decisions. I am taking all of the risk … Ultimately, we are independent and our own business owners.
Examiner: How important is the existence of franchising to Asian-Americans, and other minorities, for that matter, in terms of getting established in this business?
Panwala: When we bought our first hotel it wasn’t doing much business for the market we are in. We knew we needed a brand and when we got one our business did increase.
Examiner: Your group has expressed great concern over how the board may rule in the McDonald’s case. Why?
Panwala: That will totally disrupt the current franchise model. The main thing our membership is concerned about is losing their independence and losing the relationship with their employees.
The franchisers will likely feel they will need to become a partner and have influence on the business and staffing decisions in order to provide another layer of protection for themselves because they are now liable for anything that happens on the employment side.
In my case, we have employees who have been with us for 15 years. We know their family. We know where their kids go to school. If, say, Suzie calls me up and says, ‘Jagruti, I need to take a few days off because of a family emergency,’ we can work that out. Now, instead, we may have to work through the corporate level to get this exception from somebody who has no relationship with my employees.
Examiner: To play devil’s advocate, don’t the franchisers already have a fair amount of control over how their franchisees run things? Why shouldn’t they have equal responsibility regarding employees?
Panwala: I’ll give you a specific example. We’re building a Best Western … What Best Western does is give us a model for the prototype hotel. This is the number of rooms and the layout and so on. But they don’t get into the daily operation. They don’t get into setting prices or staffing needs. We are still the owners. As long as we are maintaining their requirements regarding how the hotel should look and the rooms should look and keep things clean they don’t have much say.
Examiner: Assuming the board does find that McDonald’s Corp. is a joint employer, what will that mean for the hotel industry in general and your members in particular?
Panwala: If somebody like me had been told this 15 years ago, I would have said, ‘No thank you, I don’t think I want to build a hotel or buy a hotel if there are going to be these restrictions by the government.’
Most of our members would be very hesitant about buying new properties or putting money into the economy by building new properties. On the other side, somebody like Choice Hotels or Marriott would likely put in higher fees because they would have to take on more responsibility.
You are also looking at more litigation and liability on both sides.
Examiner: For those who do go independent, how much harder will it be to maintain their business without the brand recognition?
Panwala: It will be difficult. I mean, the franchising model is working. It is just not clear why the NLRB is getting involved.
Examiner: You’ve been having your members lobby their members of Congress on this issue over the summer. How has it gone?
Panwala: It is our top legislative priority. Throughout the membership we’ve had many meetings with the congressmen and women. I met with [House Minority Whip Steny] Hoyer last month … We have members flying in from across the country to meet with their members this fall. Congress members have a lot of things on their plate, but I do believe that since we have started this most do understand.
Examiner: If it comes to it, do you think the business community can generate the support needed in Congress to roll back a board decision?
Panwala: I truly hope it doesn’t come to that, but we are doing everything our members can to educate members of Congress on how devastating this would be.
This article appears in the Sept. 14 edition of the Washington Examiner magazine.
