How Franchise Restaurants Opened the Door to the Gig Economy

What It Covers

Brian Calacci, chief economist at the Open Markets Institute and author of *Chains of Command*, explains how the franchise business model—developed in the 1950s and 1960s by figures like Ray Kroc and Colonel Sanders—deliberately exploited antitrust and labor law loopholes that later enabled the modern gig economy.

Key Questions Answered

• •Legal structure of franchising: Franchisors collect royalties of 6–20% of sales while dictating prices, hours, product mix, employee greetings, and drive-through timing through operations manuals that can be changed unilaterally. Franchisees sign contracts with no corporate liability shield, meaning personal assets—house, savings, car—are exposed if the business fails, making them middle managers with personal financial risk.
• •The "double-barrel immunity" strategy: Franchisors successfully argued in antitrust courts that they are a single entity (making price-fixing conspiracies legally impossible), while simultaneously arguing to labor regulators that franchisees are entirely separate employers (blocking workers from unionizing against the parent brand). This dual legal positioning, named by the Teamsters in the 1960s, remains largely intact today.
• •Wage suppression as the primary lever: Research by economist David Weil confirms that workers at franchised locations earn lower wages and experience slower wage growth over time than workers at company-owned locations within the same chain. The only operational variable franchisees genuinely control is labor cost—staffing levels, hours, and pay—making wage compression the central profit mechanism.
• •No-poach agreements and wage effects: Many franchise contracts historically prohibited workers from transferring between locations of the same chain without their current franchisee's permission. A natural experiment in Washington State, where these agreements were banned, produced measurable causal wage increases, providing direct empirical evidence that no-poach clauses suppress worker earnings across franchise networks.
• •Franchise law as the template for gig economy control: Legal battles won by franchisors in the 1960s–70s established that companies can exercise detailed algorithmic or contractual control over nominally independent contractors without assuming employer liability. Amazon's Delivery Service Partner model—where drivers wear Amazon uniforms, drive Amazon trucks, but are employed by contracted small businesses—directly replicates this franchise legal architecture.