How to Mitigate Your Joint-Employer Risk When Determining Franchisor Liability

If you are a franchisor, a franchisee or a firm that uses a third-party staffing vendor, there are many concerns swirling in regards to who is a joint employer and who holds the responsibility and liability to their employees. The real worry is that a franchisor may find itself liable for its franchisees’ employees and the franchisees’ actions when there is litigation concerning franchisee employees and certain working conditions.

As I mentioned in my September byline, “Understanding the challenges of the recent joint employer rulings,” the National Labor Relations Board (NLRB) decided to hold McDonald’s liable as a “joint employer,” and as a result caused controversy among those in the franchise sector. The ruling was in response to an allegation by employees of nearly 30 McDonald’s franchises who claimed McDonald’s was conducting unfair wage practices against employees who were protesting for a higher minimum wage.

The fear for many in the franchise industry is that it may lead to more litigation by employees and more liability for franchisors. The McDonald’s case is one of many that will likely be pursued in the coming months if there is a final determination in regards to responsibility. It is clear, however, that the climate is shifting from more of a hands-off approach by the NLRB to a more contentious one. Holding franchisors and companies who use staffing agencies further liable for a host of workplace changes could be a repercussion of this type of ruling, which could include the following areas:

    • Providing a safe work environment, and making sure safety protocols are followed
    • Providing a harassment-free workplace (sexual preference, gender, race, age etc.)
    • Providing a fair working wage
    • Providing a drug-free workplace

If more cases are brought before the NLRB, it may not be surprising if more and more franchisors will be held accountable for making sure the above working conditions are practiced at ALL of their franchisee locations.

In the staffing industry, this has been an ongoing concern and one that has been dealt with on a case-by-case basis for many years. Although staffing businesses have often been involved with workplace issues between the hiring company and the employees the staffing agency provides, it has largely been worked out directly by the concerned parties. Without government intervention, the staffing industry has implemented many standards of employment to help avoid many of the concerns franchisors could face going forward. Similarly, many franchise businesses have adopted comparable employee workplace guidelines for their franchisees, while allowing them the freedom to make certain decisions themselves.

Can franchisors do anything now to avoid being held liable, as joint employers, for their franchisee’s employees in the future? It largely depends on how much control a franchisor wants to have over their franchisees and their locations. Signs indicate the more control a franchisor has over its franchisee, the more likely it’s going to be held to a higher standard of responsibility, and consequently liability, in employee disputes.

The best plan would include creating a system where a franchisor works with a franchise business to do everything possible to prevent a liability issue in the future. While franchisors do not necessarily want to put undue control over their franchisees, having a system can help ensure compliance. Another tact is to strictly limit your involvement in your franchisees’ business. Practices that could find you responsible as a joint employer:

    • You supply your franchisees with company developed and installed employee management software
    • You have any input into the hiring, disciplinary action or firing of franchisee employees
    • You pay the employees, or you have any say in the wages they are paid

This is not a comprehensive list or legal advice; that is best left to the lawyers and litigation specialists. If you are concerned about what this means for you as a franchisor, there are many online resources and articles about this subject. Digging deeper into the law is something every franchisor needs to do right away to help protect themselves or contact a lawyer specializing in franchise law.

The concern, too, is where the line is going to be drawn by these rulings. For instance, as a brand, a franchisor could be negligent to the survival of a franchisee if guidelines are not in place. Examples include the design of the building façade, the colors used, the types of furnishings and signage to promote the franchise business. These elements help build a brand with staying power and are part of an overall marketing plan for the business. Even software for employee scheduling could be considered an important part of the branding process but, depending on the situation, providing that to your franchisees could set in motion the idea that you are involving your franchise in an area that should be decided by the franchisee.

The joint employer question also has our Canadian neighbors concerned too, even though their regulations and laws are quite different. A recent article posted by a Canadian legal firm, Gowling WLG, offers some interesting insight into the franchisee-franchisor legal responsibility issue.  From a U.S. perspective, it has yet to be seen if the rulings are going to hinder franchisors from continuing as usual or putting a damper of the ever-strengthening franchise business growth here.

Jason Leverant is president and COO of AtWork Group, a national staffing franchisor with more than 93 franchise and company-owned locations.

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