This report examines the use of electronic monitoring in franchises and the difference in incentives between franchise models that resemble independent entrepreneurship versus employment. The author argues that franchising provides 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.

Findings:

Through analysis of 530 franchise contracts, findings show 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. The 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.”

The author 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.