Carefully Hiring, Managing and Monitoring Employees is Essential to Minimize Franchise Litigation Risk
We live and work in an increasingly litigious world. To protect themselves, franchisors (Zors) providing services involving children (like daycare centers) or those reliant on physical touch (like wellness organizations) need more than the word of their franchisee operators (Zees) that they comply with regulations like criminal background checks, insurance, professional license and employment verification. While required by law, these regulations vary from state to state.
Yet here we are, seeing increased lawsuits about employment issues pulling more and more Zors (and Zees) into the litigation fray — and at significant cost. While Zees must comply with hiring and ongoing status check requirements, Zors are also liable for mistakes, especially with the legal lines of responsibilities blurring between joint employers.
Zors need a more effective way to ensure compliance and checks happen when they’re supposed to. It should not be so difficult to operate any business and avoid attracting unwanted lawsuits, especially those associated with following the proper procedures with employee checks.
The Growing Relevance of Joint Employer Liability
With the rise of litigation risk for Zees and Zors, joint employer liability’s relevance has increased. The concept refers to multiple entities that share legal responsibility for working conditions or employee actions. In franchising, Zees and Zors can be held liable for any employment law violations within the franchise.
Several years ago, an expanded joint employer standard increased litigation against Zors by 93%, cost $33.3 billion in revenue, and slashed 376,000 jobs. In 2020, the Department of Labor (DOL) released a Joint Employer Rule under the Fair Labor Standards Act designed to set expectations for Zors and Zees via a four-part test enabling the DOL to clarify:
- Joint employer status.
- Employer liability.
- Roles and responsibilities of Zors and Zees in a business relationship.
Both parties must clearly understand their roles and responsibilities associated with hiring, managing and monitoring employees. Otherwise, both may find themselves faced with lawsuits. Consider these recent court cases:
- 2023: A lawsuit against a massage therapy company sought damages for emotional distress and negligence on behalf of a woman claiming assault from a massage therapist.
- 2021: Workers filed a class-action lawsuit against a fast-food chain and its franchisees, alleging they were subjected to a “racially hostile work environment” and that the company failed to address complaints about discrimination and harassment.
- 2019: The New York State Attorney General’s Office settled with a fast-food Zor’s Zees over allegations of wage theft.
- 2018: A federal ruling held a fast-food Zor liable for wage and hour violations committed by its Zees.
Now three years later, the U.S. National Labor Relations Board (NLRB) is reversing course — opting to return to a broader, murkier definition of joint employer. What might this reversal mean? Increased legal liability, lost jobs and lower revenues.
So now what?
Add Business Protection with Automated Verification
History has proven that as they build brand value and reputation over many years, Zors become particularly vulnerable to lawsuits. Compliance requirements increase the vulnerability of Zors involved with children’s services, massage, waxing, hair, aesthetics, fitness, and home and health services (chiropractic, IV, hormone therapy, etc.). One newer background verification solution offers protection for Zors and Zees alike: automated employee checks. This approach helps mitigate joint employer liability by:
- Automating all required inspections for Zees eliminates the need for human-dependent supervision and significantly reduces the risk of error.
- Providing Zors with visibility into the status of employee checks without showing a job candidate’s or current employee’s personally identifiable information (PII) or directly involving the Zor in the screening process.
- Ensuring compliance and reducing risks while streamlining operational efficiency.
Zees complete all required checks quickly and accurately by automating the background screening process. They avoid costly mistakes like hiring a candidate with an expired license, criminal record, or missing re-check deadlines. Because let’s face it — managers have many responsibilities and relying on them to remember and execute every check is not a reliable strategy.
Still on the fence? Staying updated on changing legal requirements and ensuring compliance isn’t easy. For example, many cities and states have Ban the Box legislation. This law prohibits employers from inquiring about a job seeker’s criminal history on the application. Violators can face significant fines. A standardized, automated process via automated employee checks helps Zees comply with all legal requirements.
The safety net of automated solutions facilitates communication between Zors and Zees about known gaps (without revealing an employee’s PII) and helps protect Zors from joint employer liability.
Automated background checks protect businesses of all sizes, remove ambiguity leading to potential liability and give employers peace of mind knowing all T’s are crossed. All I’s are dotted to build a stronger brand and business.
The views and opinions expressed in this article are those of the author, Matt Goebel, and should not be construed as legal advice. It is recommended that readers consult with a licensed attorney for specific legal advice tailored to their unique circumstances.