Legal Risks of Joint Employment

As a franchise consultant, I am often asked if a franchisor can be held liable for the joint employment of a franchisee’s employees.

This issue has become a major concern for the franchise community.  In 2014, the National Labor Relations Board (NLRB) made a series of aggressive, anti-franchise rulings that attempted to make franchisors liable for the actions of their franchisees as these actions relate to the employment of the franchisee’s personnel.

The NLRB ruled that McDonald’s franchisees and McDonald’s franchise company are jointly responsible for the issues that cover the hiring, firing and management of the employees at McDonald’s franchises.  Some franchise experts believe that the NLRB is taking these steps to eventually enable franchisee employees to unionize.

However, the courts have ruled that franchisors who take certain actions to separate themselves from their franchisees will not be held liable for most employment questions.

In the past, most franchise relationships involved the franchisor supporting and training the franchisees in all areas of their business.  Joint employer issues were not a problem because franchisors understood their role was to give franchisees tools, and it is then up to the franchisees to implement these tools.

The job of recruiting and training the location’s employees has always been up to the franchisee—who should follow the guidelines formulated by the franchisor.

The following is a list of five things you as the franchisor can do to minimize the potential liability of joint employers:

1. A franchisor should not be involved in hiring, firing and disciplining the franchisee’s employees or in establishing wage levels and work conditions.
2. A franchisor should isolate itself as much as possible from employee training.
3. A franchisor should not supply franchisees with a sample employee handbook. Rather, franchisors should recommend that franchisees retain the services of a suitably qualified labor relations or human resources firm.
4. A franchisor should not make certain software programs mandatory.
5. A franchisor should not express brand standards in the operating manuals, training materials, recruiting materials and other documents.

The issue of joint employment in franchising is yet to be determined by the legislative and judicial branches of government.  In addition, both the new administration and the NLRB will certainly have an impact on this issue.  Only time will tell.