If you’re buying a franchise, chances are you are expecting to get the “complete package.” You don’t want to recreate the wheel, and you are willing to part with a percentage of your revenues each month in exchange for a proven franchise system. But while your franchisor may be involved in many of your day-to-day operational functions, your franchisor will be hesitant to involve itself in your daily employment practices. When it comes to these functions, many franchisors are taking a hands-off approach, which may require you to seek employment advice and assistance elsewhere.
Franchisors are hesitant to micromanage their franchisees’ employment processes due to recent court decisions and actions by the National Labor Relations Board which, beginning in 2014, threatened to turn the franchise world upside down. The issue was whether or not franchisors were “joint employers” with their franchisees such as to give their franchisee’s employees certain rights against franchisors they would not have otherwise had, including rights to pursue remedies for unfair labor practices and other legal claims.
The reason franchisors and franchisees faced “joint employer” status was simple – franchisors were becoming too involved in their franchisees’ day-to-day employment functions. It was not uncommon for franchisors to be involved in their franchisees’ employment decisions, such as hiring, firing, work conditions, hours and shift requirements, employee tracking, and other employment-related policies and actions. And while some franchisors did not actually involve themselves with their franchisee’s employment issues, their franchise agreements often reserved the right for them to do so, which also caused potential “joint employer” liability. Given the serious legal implications brewing in 2014, many franchisors determined it was not worth the risk to continue assisting and controlling their franchisees with respect to basic employment functions, and to leave those functions to their franchisees.
On December 14, 2017, the NLRB made a significant shift in its interpretation of what constitutes “joint employment” for purposes of the National Labor Relations Act. According to the NLRB, franchisors may be permitted to exercise control over a franchisee’s employees, so long as the control is either indirect, contractually reserved but never exercised, or limited and routine. However, while seemingly promising, the NLRB’s position is far from clear, and it is unlikely franchisors will uniformly change their positions and begin exercising significant control and assistance over their franchisees’ employment functions. New franchisees must understand this reality, to avoid being disappointed when they are not offered employment assistance down the road.
If you have any questions about franchise law, please contact Brian Loffredo at
ABOUT BRIAN LOFFREDO
Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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