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What are some of the hot topics in franchising?

Having just completed the renewals for our franchise clients, we spent a lot of time talking with clients about the “joint employer” issue percolating through the National Labor Relations Board.  Most of the revisions to franchise documents this year dealt with the issue of joint employer liability.  For review, the NLRB is currently processing some cases that consider whether a franchisor exerts so much control over a franchisee’s business that the franchisor is the “joint employer” of the franchisee’s employees, liable for all aspects of the employer-employee relationship. 

Generally, our review of franchise documents focused on clarifying the level of control a franchisor has over the franchisee’s operations, making sure that the franchisor’s control is directly related to the protection of the brand and clarifying to all of the roles of the various parties.  Here are some examples:

  • Clarifying that the franchisor is not the employer of the franchisee’s employees
  • Ensuring that the franchisee has all authority over the hiring, firing, disciplining, compensating, training, and all other aspects of the employee’s employment with franchisee
  • Removing any control a franchisor has over the franchisee’s employees, except for issues that are directly related to the protection of the brand.

We also discussed several operational issues to further clarify the precise relationship between the parties, such as:

  • Requiring the posting of a sign in the franchise location that clearly discloses the identity of the franchisee as the owner of the location as an independently owned and operated licensee of the franchisor
  • Ensuring that whenever a franchisee uses the franchisor’s trademarks (on paychecks, business cards, or email signatures, for example) that the franchisee clearly discloses that franchisee is an independently owned and operated licensee of the franchisor
  • Ensuring that the employment application forms clearly identify the franchisee as the employer
  • Ensuring that during the franchisee hiring process, the employee acknowledges that the franchisee is the sole employer of the employee. 

The current controversy at the NLRB focused a discussion on good business practices in the franchise industry. 

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