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Franchisor Liability in The Future

September 2016 Newsletter Article Franchisor liability took a turn down a different road in 2014 when the National Labor Relations Board (NLRB) determined that the home of the Big Mac, McDonald's, was a joint employer. The effect of the NLRB's ruling was that McDonald's employees could seek redress for violations of their rights under the National Labor Relations Act (NLRA) against a franchisor, in this case, McDonald's, USA, LLC, rather than being limited to suing the individual franchisee that owned and directly operated the employees' actual place of employment. In years past, Franchisors generally avoided liability for matters like overtime by inserting terms in franchise agreements which imposed responsibility on franchisees for this and almost every circumstance and situation arising during a franchise employee's course of employment. These terms made a technical distinction and designated a franchisee as the "employer" directly and solely responsible for issues related to employment. However, as a result of the NLRB decision, a franchisor is more likely to be considered a joint employer and subject to liability for employment issues presently and in the future. Because of the McDonald's ruling and the fact that an employee may be jointly employed, i.e., have two or more employers under the Federal Labor Standards Act, the Department of Labor ("DOL") decided to act in the past year and list and clarify the scenarios in which two or more employers jointly employ an employee, and are thus jointly liable for workplace violations, including those under the Federal Labor Standards Act (FLSA). The DOL's Administrative Interpretation distinguishes these evolving joint employment scenarios as horizontal or vertical. Vertical joint-employment typically involves an employee who has an employment relationship with one employer, like a subcontractor or employment agency, but the worker is economically dependent upon another party involved in the work, thus sufficient to classify the employment as joint. Horizontal joint-employment is based upon whether two different parties, like a franchisor and franchisee, are sufficiently related to jointly employ the employee. According to the DOL, a reason for this legal trend is that traditional employment scenarios consisting of one worker/one employer are less common. These relationships are more infrequent because business models and labor arrangements are presently evolving, primarily because of technology and the Internet. Thus, many employment scenarios now resemble vertical and horizontal joint employment arrangements. Because of the aforementioned fact that business models and labor arrangements are evolving in 2016 and especially going forward to 2017, it is important to enlist the assistance of an experienced business attorney. At R. D. Adair, PLLC, we can assist any employer in any business situation, including the acquisition or formation of a new business, whether or not a franchise or individual enterprise.


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