Buying a Franchise

Franchisors, Franchisees, and their Employees

McDonald’s is facing a lawsuit which the franchise industry needs to watch. Workers at McDonald’s are suing the franchisor, not franchisees, for employment issues. The argument is that vicarious liability, a legal term meaning that the a superior is responsible for the acts of a subordinate, applies to employment lawsuits at McDonald’s because the franchisor was advising the franchisees on best practices for managing, hiring, and firing workers. In these suits, they argue that McDonald’s corporate and franchisees are joint employers and act as a single unit.

If the plaintiffs in these cases are successful, this could have serious impacts on the franchise industry, essentially changing how franchisor-franchisee relationships function. Lawyers are already advising franchisors to limit the scope of the advice that they give franchisees to ensure that liabilities aren’t created. If these cases, which are in multiple states, should be joined into one class action suit, this has the potential to affect the franchise system as a whole, not just McDonald’s.

This isn’t about how to flip the best hamburger or how to ensure that you’re presenting the brand in the best light possible to the public. It’s about things like telling workers to go home early because your labor costs are too high. In the case of McDonald’s, the franchise uses real-time labor cost calculations in an employee management software program franchisees are required to use. The lawsuit aims to show that this software affected employee wages and management. If franchisors become involved in the day-to-day operations of a franchised location, it opens up the door to franchisor liabilities.

Franchisors give advice to franchisees—that’s typically the nature of the relationship. Franchisees expect training and guidance on how to best run their businesses and when they need help, they turn to franchisors. After all, they are paying for access to professionals in the franchise system. Franchisors, however, may hesitate to get involved, in case vicarious liability is created and they can then become responsible for franchisee’s actions. This potentially could include franchisees who are breaking the terms of their agreements. To reduce their risk, franchisors might decide to pull back on advice altogether, leaving franchisees without anywhere to turn with difficult problems.

This lawsuit is expected to take a very long time because every document and interaction between the franchisees and McDonald’s needs to be reviewed and questioned by legal teams. In the meantime, franchisees and franchisors in every industry should pay attention to developments in these lawsuits.

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