Rumors Of Joint Employer Liability For Franchisors Are Greatly Exaggerated

Despite the hand wringing and pontifications that franchisors will now be deemed employers or joint employers of the employees of their franchisees, that is simply not the case. The long-held protections enjoyed by franchisors in this regard are very much alive and well.

Rumors of the demise of these protections began with a rather pedestrian announcement in September, 2014, that the National Labor Relations Board (“NLRB”) was investigating charges, based on specific facts and circumstances, that McDonald's and some of its franchisees were working in concert to stifle the rights of employees of the franchisees to protest working conditions. If true, those actions would violate the National Labor Relations Act. But, whether true or not, a finding of liability under those specific circumstances does not equate to the end of the historical protections a typical franchisor enjoys when it comes to liability for franchisee originated employment issues.

A franchisee by definition is an independent corporate entity operated under a license from the franchisor. Any franchise agreement worth its salt has a lengthy and detailed disclaimer of any agency, employment, partnership or joint venture relationship between the franchisor and franchisee so that the sins of the franchisor father are not cast upon the franchisee sons and daughters and vice versa.

Can a franchisor be held liable for irresponsible employment actions of its franchisee? Of course but – and it’s an important “but” – the franchisor had to have inserted itself into the franchisee’s business by exercising control over the franchisee’s employment decisions and/or policies. For example, require a franchisee to utilize a franchisor created/selected employee handbook and the franchisor has crossed the Rubicon of liability. Requiring the use of franchisor created employment applications, evaluations and/or policies add fuel to the liability fire. Of course, actually being involved in the hiring, firing, promotion or supervision of employees of the franchise, makes easy work of creating a successful claim for joint employer liability.

In sum, let common sense and sound employment advice rule the day. Stay out of the franchisee’s business and you won’t be liable for its mistakes.

James G. Ryan is the Partner-in-Charge of the Commercial Litigation Department and the Chair of the Employment Litigation Department at Cullen and Dykman.