Can A Franchisor Be Deemed An Employer And Sued By Employees Of Its Franchisees?
One challenge of being a franchisor, and let me tell you I ought to know, is being enjoined in a lawsuit that is levied against one of your many franchisees. Why do lawyers go after the franchisors when their clients have a dispute with a locally owned and operated franchisee? For one very obvious and simple reason; the lawyers are going after the big bucks. You see, whereas a franchisee maybe profitable, it simply will not have the huge cash flow or capital behind it, so even if the lawyer wins, there isn’t much to win.
Luckily, franchisors have huge franchise agreements that protect themselves from such liability, and there are clear lines drawn and legal separations between the entities in these agreements. Of course, that doesn’t stop government regulatory agencies, class-action lawyers or local litigators from going after franchisors. Recently, I was reminded of a ruling by the Commonwealth Court of Pennsylvania “that a franchisor would not be deemed a joint employer of an employee of a franchisor.”
Of course, consider if you will all the potential jurisdictions and all the states that may see this different, also consider all the labor unions that would like to see large corporations (franchisors) have to submit to union formation – everything from fast food restaurant franchisors to car dealership franchise systems.
We’ve seen similar cases ruled in favor of large companies in the past in several states such as a large overnight shipping company with independent contractor drivers, or those drivers being independent contractors of ride-sharing app-based companies. For franchisors each time a large case is won this helps preserve the franchisor/franchisee legal relationship and thus, protects the franchisor from incessant lawsuits stemming from franchisee missteps or legal challenges.
If franchisors were deemed to be joint employers with their franchisees, they’d face massive unionization, and would have to carry health care insurance, workers compensation, etc. for all employees system wide. If you consider that a franchisor could easily be operating in 40-50 states in the United States alone, this would be a nightmare undertaking and could be enough to trigger system wide collapse of the franchising chain, causing potential bankruptcy for its franchisees which are in essence all small businesses themselves. The job loss and small business loss would be catastrophic for our nation.
It would only help a handful of law firms, and the unions, everyone else loses and the consumer would pay more because franchising systems are well-oiled and efficient machine, highly competitive in the prospective sectors of our economy. Think on this, Be Great, Don’t Hesitate!