Franchise Operations

Who’s the Boss (of Your Franchise)?

Messy deskThe National Labor Relations Board declared earlier this year that a franchisor and franchisee could be considered “joint employers” and share the responsibility for treatment of workers, as well as the potential liability.

Legal cases around the country have been bringing that issue to the attention of franchisors and franchisees alike, but it looks as though the question has still not been decided.

A case arose last month when a restaurant worker was seriously injured while manually cleaning a defective appliance. A lawsuit was brought against not just the franchisee who owned the restaurant, but against the franchisor.

The franchisor asked for dismissal of the case, because the restaurant chain did not have direct control over the restaurant’s day to day operations. The court disagreed.

  • First, the franchisor provided training on the use of the appliance. A malfunction of the appliance required that it be hand cleaned, but the man who was hurt had not been trained in how to hand clean the appliance. By accepting responsibility for training workers, the court decided, the franchisor had accepted at least some responsibility for injuries caused by lack of training.
  • The plaintiff also argued that the franchisor made inspections and provided equipment and operating systems, and so they must have known that the appliance was broken. The appliance had apparently been broken for a long time, so the court agreed that the franchisor had probably been aware of the malfunction. Since the franchisor created the daily operations systems, the court decided, they should have had systems in place for worker safety.
  • Franchisors, the court felt, are not powerless when there is a safety violation at a franchise, because they can terminate a franchise agreement if conditions are not met. They therefore have, according to the court, a common-law duty to make sure that workers are safe.

This court decision does not say that the franchisor is at fault. It says only that there is enough possibility that the franchisor could be held liable that the case should be heard, not dismissed.

In this case, it is not suggested that the franchisor is a “joint employer,” only that the franchisor has enough control over the franchisee that they should have recognized and helped to fix the dangerous working conditions.

In 1998, the American Bar Association suggested that this kind of thinking was dangerous. If having safety rules and inspections makes franchisors liable for unsafe working conditions in workplaces which they don’t actually control, the argument went, they will be more likely not to have any safety rules at all.

By helping the franchisee with training and by having daily operating procedures, the ABA would have said, the franchisor was making all their restaurants more safe — but endangering themselves. If they played it safe for themselves by failing to have those safety measures in place, their restaurants would be more dangerous.

Lauren McFerran, recently nominated to serve as a member of the NLRB, was asked during her confirmation hearing how she felt about the issue of franchisor liability, but declined to answer. She explained that she thought she would probably have to make decisions about the matter on the board, so she felt that she shouldn’t comment ahead of time.

It seems likely that she’s right.

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