Franchises Squeezed Tightly by Health-Care Law

Dan Drennen says his franchisees are sitting on their hands. According to the general manager of Visiting Angels Living Assistance Services, multi-unit franchisees are withholding expansion in the face of the Affordable Care Act’s employer mandate.

“The cost becomes exponentially greater,” Drennen said. “They are subject to the ACA and it’s a law of diminishing returns.”

Drennen said single owner deals continue to come in, as Visiting Angels has 437 franchise locations, and near 420 individual franchisees. But for many of those nearing the 50-employee level, where the employer mandate kicks in and health-care is a requirement or a $2,000 annual penalty per employee is due, they’re staying put.

“Everyone is in a holding pattern,” he said. “In the last year, we have between 30 and 40 [multi-franchise] deals that have been held off, because it’s not a perfectly clear picture.”

Paul Mangiamele, CEO of Bennigan’s, said he has several multi-store agreements with franchisees that have been shelved since the ACA became law. Bennigan’s franchises cost $35,000 in fees to open per location, Mangiamele said. If someone signs a five- store deal with the franchise, Bennigan’s charges $35,000 for the first store, and a $10,000 deposit upfront for the remaining four locations.

So the expansion slowdown not only halts job growth under the Bennigan’s name, but withholds the company from collecting about $100,000 in fees.

“This very mandate will stifle the growth that the administration touts it will help,” Mangiamele said. “It’s puzzling how this makes sense for anyone in D.C. These are jobs that would impact high unemployment.”

Mangiamele has 82 Bennigan’s locations across 15 states, with 55 franchisees. He personally offers health insurance to his corporate office’s 12 employees, even though he doesn’t have to under the new requirements.

“We do the right thing, and don’t need a mandate to do it,” he said.

Don Fox, CEO of Firehouse of America, a restaurant franchise, said he plans to bring his franchisees together next month for a health-care summit. His multi-location franchisees, those with five or more restaurants, will discuss how the law impacts their businesses.

“If [a franchisee] is in a five-store agreement, for our brand, opening restaurant number five means the mandate will apply. In essence, what I have done is put my entire investment for restaurant number five toward offering paying for health care. So why open it?” he said.

He offers 100% coverage for his full-time workers at his 30 restaurants, and is ballparking costs at near $5,000 per worker once the law kicks in, he said, and the Treasury Department offers up the guidelines for what constitutes “adequate” coverage.

Drennen said he is hopeful the franchise and small-business community will be able to weather the challenges the ACA presents.

“I don’t think the act is insurmountable,” he said. “The demographic is in our favor, and I am optimistic about it.”