As noted by the Wall Street Journal in the editorial “A Joint-Employer McDouble,” both the federal government and class action attorneys are working hard to impose joint-employer liability on franchisors for alleged misconduct by franchisees with regard to employee claims.
Business Opportunity Licensors and Joint Liability
According to Business Lawyer Mike Young, the theories being used to shake down franchisors like McDonalds may also be applied to those who license rather than franchise their business systems. In other words, if franchisors can be held jointly liable as employers, it’s not too far of a stretch for the same legal arguments to be applied in suits against business opportunity licensors for claims made by licensees’ employees.
Related Article: How To Use Business Contracts To Prevent A Single Point Of Failure
Indirect Control and Joint-Employer Liability
The National Labor Relations Board (NLRB) is attempting to impose joint employer liability under the theory that a franchisor indirectly controls at least some of a franchisee’s employees.
Ostensible Agency and Joint Liability
As noted in the Wall Street Journal editorial, it appears that plaintiffs’ attorneys may succeed if they can show that franchisee employees reasonably believed that franchisees were acting as ostensible agents for the franchisors when committing misconduct.
How to Reduce the Risk of Being Held Jointly Liable
License instead of Franchise
In addition to less regulatory burdens, licensing your business system (instead of franchising) reduces the odds you’ll be on the hook as a joint-employer. Unlike franchising, there are many ways to structure a business licensing deal so that a licensee’s employees don’t even know of the licensor’s existence.
“Lacking knowledge of a licensor-licensee relationship, it would be difficult for a licensee’s workers to argue joint employer liability under ostensible agency or indirect control theories.” – Dallas Internet Lawyer Mike Young
Indemnification and Defense
It may be appropriate for your franchise agreement or business opportunity license agreement to make it clear that if an employee of a franchisee or licensee brings a claim against you as an alleged joint employer, that your franchisee/licensee will indemnify and defend you against such a claim.
Written Employment Agreements and Policies
Of course, whether you’re a franchisor or a business system licensor, you may want to ensure that your respective franchisees and licensees make it clear in employment policies and any written employment agreements that you do not control their employees (directly or indirectly) and that your franchisee or licensee is not acting as your ostensible agent with regard to employment matters.
Related Resource: Business Contract Legal Protection Package
Your business lawyer can prepare related provisions for use in employment contracts and workplace policies.
