Girl Scouts, Many Non-Profits, and Maybe Unions are Franchises

Citizen Wealth Financial Justice

girl scouts

New Orleans  Here’s one the lawyers did not catch for some of the fast and furious in the non-profit world who believe there is an escape hatch in a federation model or licensing that lets them have all of the power over their affiliates with none of the liabilities or responsibilities for them:  no matter what you call yourself, Dunkin Donuts are you!

            Ok, remember the Girl Scouts?  Well, they may be having different troubles than the Boy Scouts, but they are having big troubles nonetheless.  In the 10 years since 2003, they have dropped 600,000 members, falling from 2.8 million to 2.2 million.   Donations have dropped from $148 million in 2007 to $104 million in 2011.  They brought in a new leader to shake-and-bake the organization so they collapsed 312 local councils to a consolidated and gerrymandered 112, cut staff, and now have a $347 million pension deficit.  This was the kind of gun-to-the-head amalgamation that unions like the Carpenters, Service Employees and others have specialized in or at least dreamed about. 

            Funny, thing happened though to Girl Scouts USA.  The Manitou Council in Sheboygan, Wisconsin took them to court under the Wisconsin Fair Dealership Law (WFDL) claiming that the local’s relationship to the parent body was the same as that of a franchise holder in commercial enterprises and therefore there were requirements for “cause” in the cancellation or termination of the agreement, for disclosure of a broad level of information, and the beat goes on.  The GSUSA was horrified.  They thought as a nonprofit they were exempt to any kind of fair play and could just cut and cull their herd anyway they wanted.   In two different opinions by the United States 7th Circuit Court of Appeals, they have been told conclusively that their locals deserved the same protections as a for-profit franchise operator and their relationship was “no different than that of a Dunkin Donuts.”

            The same laws as Wisconsin exist in 20 other states and on the federal level in the Fair Trade Commission’s (FTC) Franchise Rule.  All of these laws and regulations require annual reporting, registration and filing by any nonprofits using a licensing or federation model, though they may not realize it.  The 7th Circuit was crystal clear that there were no exemptions specified for nonprofits and in some cases, like California they were indirectly referenced or part of the overall definitions of “persons” under the law.  The FTC language is also specific in including unincorporated associations, which is the category most commonly held by unions and their local affiliates, which may mean that they are under the same requirements and protections as other franchise holders.

            The facts that drive all of these cases lies in the “community of interest” between the parties, which is also a familiar term for union brothers and sisters. The parent organization has an agreement or charter with the affiliate allowing them to use the name (or brand, as too many like to call it!), symbols, etc, while they are required to perform by certain standards, pay dues and fees to the parent, and so forth.  The affiliates or in these cases the local councils or local unions or whatever are autonomous in terms of their ability to hold property, manage and take responsibility for their own finances and affairs, even while tethered to the mother ship, once again the same as one can find in the relationships to national unions or other federations. 

The court reminded all of the parties of the obvious which so many in this work fail to understand.   The only thing that separates nonprofits from for profits is the fact that nonprofits cannot distribute surplus revenues to shareholders or themselves.   Period.

I’m not a lawyer, but I have to wonder how many nonprofits are riding roughshod over this situation without taking notice of the new world that the Manitou Girl Scouts have now brought to any organization with a federation or licensing model of operations or even, possibly to unions and their locals and the willy-nilly mergers and trusteeships that have been as common as colds in recent years in the labor movement. 

Thanks to an AP story by David Carey on the Girl Scouts for tipping me off about this decision and to an excellent law journal piece by Gary Leydig and Angela Gordon in the Franchise Law Journal, Volume 31 Number 4, Spring 2012.