In Puppet Entrepreneurship: Technology and Control in Franchised Industries, author Brian Callaci examines the use of electronic monitoring in franchises and the difference in incentives between franchise models that resemble independent entrepreneurship versus employment. Callaci argues that franchising provides a “a useful lens for policymakers to think about how to assign legal rights and responsibilities” in other areas where corporations have blurred the lines between entrepreneurship and employment, including the gig economy.
The franchise model uses independent, locally-owned establishments under the branded umbrella of a corporate chain to allow the parent company to forgo legal risks and avoid providing employee benefits. However, despite being independently owned, each franchisee must adhere to a “uniform customer experience.”
Through analysis of 530 franchise contracts, Callaci shows that remote electronic monitoring is most often used in cases with inexperienced franchisees, and those that are tightly controlled through competitive restrictions known as vertical restraints. His analysis also suggests a typology of franchising models:
- Entrepreneurial, in which the franchisee is treated as an independent, knowledgeable entrepreneur; and
- Effort-intensive, in which franchisees “execute prescribed tasks under close monitoring by the franchisor.”
Callaci argues that this distinction—understanding whether an independent business has the power to make decisions vs. carries out prescribed tasks—could help policymakers decipher the “legal issues of misclassification and joint employment.”