Chief economist Brian Callaci illustrates how Amazon’s new “franchising model” for trucking companies is really a way for the corporation to pay lower wages and outsource risk.

Earlier this year, Amazon reportedly started developing an incubator program to set up hundreds of new trucking companies managing fleets of Amazon-branded tractor-trailers. Targeted at budding entrepreneurs with no industry experience, the new freight companies would work exclusively for Amazon, on routes chosen by Amazon, with rates set by Amazon. 

This initiative follows Amazon’s very similar franchising of “last mile” delivery to local trucking fleets in 2019 with its Delivery Service Partner (DSP) program. Amazon touts its DSP program for creating opportunities for thousands of people, in particular people of color, to start independent small businesses under its tutelage. Like the freight incubator, the DSP program targets inexperienced entrepreneurs, who can be trusted not to challenge Amazon’s paternal guidance with their own preconceived ideas. Also like the freight incubator, while DSP companies are nominally independent businesses, they deliver packages exclusively for Amazon in Amazon-branded vehicles, according to Amazon-prescribed routes, rates, and schedules. 

A key benefit for Amazon is that the DSPs are the employer of delivery drivers, bearing any liability for accidents or workplace safety. This also means that DSP workers do not fall under Amazon’s $15 an hour minimum wage, despite working for Amazon in everything but name. And the contracts usually stipulate flat delivery rates, restricting the wages the DSP can offer. Amazon is even able to ensure these drivers remain non-union through a contractual mandate that they serve as at-will employees. If the workers unionize, Amazon can terminate the contract and find a new DSP, which is much easier than fighting a union campaign itself.

Amazon is not the first large corporation to try outsourcing risk and responsibility to subordinate small businesses controlled through contracts. Petroleum companies pioneered a similar business model by converting company-owned stores to independent gas stations in the 1930s, and fast-food corporations took a similar path when they established franchised chains in the 1950s. However, the history of franchising offers a cautionary tale. 

As historian Marcia Chatelain has written, conservative policymakers turned to franchising after the urban uprisings of the 1960s, as an alternative to actual redistribution of wealth or power. These politicians hoped that expanding franchise opportunities to Black entrepreneurs would reduce racial disparities without requiring new social programs. However, rather than nurturing and supporting truly independent Black businesses, Nixon-era policies shunted aspiring Black entrepreneurs into the control of large, white-owned and white-run corporate chains. Franchisors, for their part, typically consigned Black franchisees to the least desirable and profitable locations.

Until the 1970s, U.S. law put strict limits on corporations’ ability to dominate and control small businesses through restrictive contracts. For example, in 1965 the Supreme Court held that exclusive contracts between Brown Shoe, the second-largest shoe manufacturer at the time, and hundreds of shoe stores was an unfair method of competition that violated the FTC Act. In another set of cases, the federal courts held that oil companies violated the FTC Act when they required gas stations to carry only prescribed brands of tires, batteries, and accessories. During this era, antitrust authorities widely interpreted the antitrust laws to protect non-employee independent contractors and businesses from coercion and control through restrictive contracts.

Congress, alarmed at abuses of independent franchisees and distributors by large corporations, held a series of hearings on restrictive contracts using in franchising and distribution in the 1960s and 1970s. In 1965 Jerry S. Cohen, counsel to the Senate Antitrust Committee, asked a franchising lobbyist, “The argument we get here for franchising is that it allows an independent businessman to be independent. But if he is told what product he has to buy, what prices he has to charge, what operation he has to operate in, then he is no longer independent is he?”

Nonetheless, in the face of lobbying pressure and litigation from franchisors, combined with the general rightward turn in American politics, policymakers and courts eventually changed their minds about whether corporations should be allowed to control small businesses through restrictive contracts. Starting in the 1970s, following new doctrines originating from the economics department and law school at the University of Chicago, courts began allowing coercive contracts and approved the control of small firms by large corporations, as long as the result was greater “efficiency.” In its 1977 decision Continental T.V. Inc. v. GTE Sylvania Inc. the Supreme Court relaxed antitrust restrictions on non-price restrictive contracts, and subsequently relaxed its rules against price restraints as well.

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