• Five States Enact Laws: Franchisors Are Not "Joint Employers"
  • August 15, 2016
  • Law Firm: Duane Morris LLP - Philadelphia Office
  • On March 22, 2016, Michigan joined Wisconsin, Texas, Louisiana and Tennessee by amending its Franchise Investment Law to clarify that-unless the franchise agreement specifically states otherwise-a franchisee is considered the sole employer of workers to whom it pays wages or provides a benefit plan.

    These laws seek to address the uncertainty created by the dramatic 2015 ruling of the National Labor Relations Board (“NLRB”) in NLRB v. Browning-Ferris Industries, which impacts when a franchisor could be found to be a joint employer of its franchisee’s employees. We reported on this decision in an earlier Duane Morris Alert. The Browning-Ferris ruling is significant to a franchisor’s duties and potential liabilities to a franchisee’s unionized workforce. In summary, two entities are considered to be “joint employers”:

    NLRB's Standard Before Browning-Ferris

    Browning-Ferris Standard

    when the two entities exerted such direct and significant control over the same employees that they shared or co-determined the essential terms and conditions of employment.

    of a single workforce if they share or co-determine matters governing the essential terms and conditions of employment.

    Indicia of "indirect control" includes dictating the number of workers to be supplied; controlling scheduling, seniority and overtime; and assigning work and determining the manner and method of work performance. 

    Federal law preempts overlapping or potentially conflicting state law. Because the NLRB applies federal law, the recently enacted state laws may be subject to challenge on preemption grounds under the NLRA.

    The recently enacted state laws impact the state law claims, which may be filed against franchisors and franchisees in state court. Further, franchise associations are urging other states to similarly amend their franchise laws.

    In states like Michigan that enact similar amendments to its franchise laws, franchisors should consider promptly:
    1. Amending the franchise agreement to reflect the new laws and, thus, plainly stating that the franchisee, and not the franchisor, is the sole employer of workers for whom the franchisee provides a benefit plan or pays wages;
    2. Reviewing the business practices regarding their interaction with the franchisee and its employees to avoid acting, which may give rise to a “joint employer” claim; and
    3. Contacting legal counsel with any questions or concerns about how the changing laws may potentially impact both the business and business practices.