Increasing Efforts to Impose Employment Law Liability on Franchisors09/03/2014 | Fall 2014 Newsletter
Franchisors should be aware of increasing efforts by government agencies and plaintiff attorneys to impose liability on franchisors for employment law violations allegedly committed by franchisee unit owners, relying upon a “joint employer” theory.
This summer, the National Labor Relations Board general counsel authorized the agency to bring unfair labor practice charges against a group of McDonalds store owners, as well as the McDonalds corporation, as joint employers”, based on claims the workers had been unfairly disciplined for participating in group wage protests, which is allegedly protected activity under federal union laws. The authorization is only the first step in a long legal process, and does not constitute a final decision, but it signals that the agency is going to continue its efforts to attempt to place responsibility on franchisors for their franchisees’ workplace law violations.
In two recent New York federal district court decisions, Olvera v. Bareburger and Cordova v. Sophie’s Cuban Cuisine, the courts allowed lawsuits to go past the initial pleading stage, on claims the franchisors were responsible for wage violations as joint employers,” based on allegations the franchisors dictated management practices, exercised control over worker performance, and exercised control over timekeeping and payroll practices.
In order to minimize potential liability, franchisors should review their franchise agreements to ensure they do not contain provisions which expose them to unnecessary potential liability. In addition, franchisors should consider obtaining special insurance coverage, called employers practice liability insurance, to cover claims by franchisees’ employees.
About the author: David T. Azrin is a partner at Gallet Dreyer & Berkey LLP. Mr. Azrin represents a range of business clients and individuals on employment, trademark, and franchise law matters. Mr. Azrin is the sponsor of the International Franchise Association’s franchise business network program in the New York City area, and has been named one of the top franchise attorneys (“Legal Eagle”) in the United States by the editorial board of Franchise Times magazine. Mr. Azrin can be reached at email@example.com.