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8 Ways Franchisors Can Minimize Risk Against the Joint Employer Legislation

The Joint Employer Legislation (JEL) isn’t the most thrilling topic you’ll encounter (it probably won’t appear on your list of hobbies anytime soon), but it’s important because the Joint Employer Standard and the current legislations have some big implications for the franchise industry. For operators, it probably feels a little unsettling because frankly, there’s a […]

The Joint Employer Legislation (JEL) isn’t the most thrilling topic you’ll encounter (it probably won’t appear on your list of hobbies anytime soon), but it’s important because the Joint Employer Standard and the current legislations have some big implications for the franchise industry. For operators, it probably feels a little unsettling because frankly, there’s a lot to digest. Franchisors and their legal counsels are likely already sifting through the minutia to formulate a solid plan in the instance that the legislation passes.

There’s a lot of background and history to understand when it comes to Joint Employer Legislation, which we’ve outlined in an eBook you can download at the bottom of this article. Suffice to say, according to the Department of Labor, a franchisor can be held liable for minimum wage or overtime violations by its franchise owners under JEL. And if found negligent, each individual co-employer would be responsible for the entire amount of wages due to the employee.

There’s more.

Employment missteps could spur class-action lawsuits and union activity in the franchisor’s business, mandating that the franchisor bargain with the union and government for wages and benefits. This could alter the franchise business model over the long haul.

Franchisors and employers are assessing the risk and taking precautions. One way they’re doing this is by limiting their exposure to franchise-owned operations-reassessing what could pass as an appropriate amount of guidance, training and support to the NLRB’s definition of “indirect control.”

Franchisors are also being cautious about how they communicate quality and brand standards while holding on to franchising fundamentals, something many experts against the legislation believe is in jeopardy.

Many franchise owners say that although they pay for the brand name and equity, they operate their businesses independently, hiring and firing as necessary. They work hard to build their operations independently, but the expanded ruling makes them less autonomous.

Here are some additional ways franchisors and franchisees can work together to insulate themselves from risk:

Publicly proclaim that franchisees are independent.
Limit control over franchisees to what is directly related to protecting the brand’s goodwill.
Engage in best hiring practices at the corporate level and encourage franchisees to do likewise.
Avoid performing administrative functions for franchisee employees.
Steer clear of taking direct, actual control over personnel policies, including hiring, firing, disciplining and scheduling.
Disclaim your right to control franchisee employees with clear documentation.
Limit interactions with non-management franchisee employees.
Choose best-in-breed technology vendors at the corporate-owned stores, share the success stories to encourage (not mandate) franchisees to explore how those options can improve their store operations.

An article written by the International Franchise Association’s General Counsel by Harriet A. Lipkin and Dianne Rose LaRocca, DLA Piper LLP (US); Michael J. Lotito, Littler Mendelson PC summed up how employers can power through the uncertainty while protecting themselves:

“Instead of sitting and waiting, employers should consider preparing themselves for a challenge in the courts or by a government agency in which liability depends on identifying the employer. How an employer best prepares itself will depend upon its business model, industry, goals and preferences. Some may review the broadened definition being advocated, examine their contractual relationships and determine they can make modifications that will shield themselves from liability or at least best position themselves in the event of a challenge. Others may go through the same process and determine that modifications are not feasible or desirable. In these instances, a good offense may be the best defense. In all cases, employers should consider educating legislators at the federal and state level, industry groups, the media and the public about how their business model operates, what the model means to the economy and how broadening the definition of employer threatens the model.”

What to know, think and do about the Joint Employer Legislation

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