Risks to franchisors have grown with the recently published U.S. Department of Labor interpretation concerning joint employment under the Fair Labor Standards Act (FLSA).
Known as the Browning-Ferris decision, the National Labor Relations Board (NLRB) ruled that the employer in this case held joint employment liability with a temporary staffing service.
Although we won’t know the extent until we see the result of pending court decisions and various state legislative actions, this interpretation definitely places franchisors at increased risk for statute violations of the FLSA.
Defining Joint Employment for Franchisors and Franchisees
The FLSA contains language that identifies the responsibilities of the employer if the employee works two different jobs during a single workweek. In that case, the employers are jointly and individually responsible for meeting the obligations of the FLSA.
These obligations include the responsibility of maintaining unemployment insurance, workers’ compensation coverage, and compliance with all applicable fair labor and wage standards.
In the case of a franchise agreement, the terms of the agreement itself can be used to quantify the relationship, as can any documentation, forms, guidance or systems you may provide as a part of the relationship.
What the Department of Labor Interpretation Means for Franchisors
For the past 30 years, the condition of joint employment could only be established in those cases where the franchisor had direct and immediate authority and control over the franchisee’s employees.
Now, however, only an indirect level of control over the terms and conditions of employment must be proven. In fact, even absent direct and immediate control, you could be deemed a joint employer if you exert indirect influence or even the potential for that level of control.
Now that the courts have this excessive leverage to hold franchisors accountable, we believe that you face increased legal risk, should your franchisee fail to maintain FLSA standards in any way.
This interpretation will be tested in the courts over the next few months, but you can take steps now to protect your interests. In addition, your state legislature may be taking its own steps to clarify the franchisor/franchisee relationship. In Utah, the Franchise & Business Law Group has helped draft and lobby for legislation that was recently signed into law, significantly increasing the protections offered to franchisors.
Protecting Franchisors from Legal Liability
Even if a claimant does not prevail in a case that asserts joint employment, you still will be forced to defend yourself. The resulting legal fees from even a single case can be significant.
To ensure that you, as a franchisor, do not have liability under the FLSA for your franchisees’ labor transgressions, it’s important to revisit all forms, training manuals and automated systems. Even advice and oversight have the potential for establishing a joint employment if you aren’t careful.
The Franchise & Business Law Group is the premier Utah franchise law and trademark law firm. Contact our experienced legal team today to schedule a consultation to review your franchise documents and practices.
We look forward to helping you reduce franchisor risks for your business.
