Franchising

The changing landscape of employment and labor law poses numerous risks and challenges in the franchise world —both with respect to franchisor’s employees and the employees of their franchisees. Franchisors are frequently named as defendants in labor and employment cases and as targets by a number of agencies such as the Department of Labor (DOL) and National Labor Relations Board (NLRB).  Our team of highly experienced attorneys works closely with franchise brands to combat the ever-increasing trend to attempt to hold them responsible for labor and employment matters that should not be their responsibility. 

Legal developments in the last decade, and in the last few years in particular, have put franchisors and franchisees on the cutting-edge of labor and employment law issues.  The following well-known examples underscore the many risks and challenges faced daily by franchisors:

• The NLRB is litigating against quick service restaurants (a/k/a “Fast Food” restaurants). The Board claims that franchisors have too much control over their franchisees’ staffing decisions and wages and, as a result, they should be considered the “joint employer” of the franchisees’ employees, obligating them to participate in the collective bargaining process.

• Disputes are arising over whether franchisees are properly classified as independent business owners or instead operate as de facto employees, raising concerns over minimum wage and overtime obligations.

• Franchise systems with a “master franchise” structure are facing legal claims questioning their role in broader operational oversight.

• In some jurisdictions, lawsuits allege that franchisors should be held responsible for income reporting practices typically handled by franchisees themselves.
• Disgruntled franchisees in industries such as convenience stores, commercial cleaning, and wellness services are challenging the degree of operational control imposed by franchisors—seeking damages on the theory that they are employees, not independent business owners.
• Employees of franchisees are also seeking to hold franchisors liable for employment claims by arguing the franchisor has deep enough control to qualify as a joint employer.

Why is all of this happening?  Primarily, it is because franchise laws (and trademark laws that apply to franchisors’ trademarks) require that franchisors exert “significant” controls over their franchisees in order to maintain their franchise status and to preserve and protect the franchise brand’s trademarks.  However, these necessary controls are often misinterpreted as overreach—fueling legal theories that challenge the traditional franchisor-franchisee model. At the same time, some franchisees have grown frustrated with operational expectations, leading to lawsuits that seek to reclassify their role. This shift in how franchise relationships are being viewed reflects increased scrutiny over business models and perceived responsibilities under employment law.

Given these developments, it should be no secret that sound franchise management now more than ever requires a partnership with experienced labor and employment counsel.

What Sets Us Apart

Constangy, Brooks, Smith & Prophete, with offices across the country, has been representing the interests of corporations in all facets of labor and employment law since 1946.  The Firm has a dedicated group of experienced attorneys who have been representing the management-side interests of franchisor and franchisee clients alike for decades.  Our attorneys regularly collaborate with clients to respond to investigations and challenge adverse findings in administrative hearings and court proceedings.  We are constantly defending lawsuits in the misclassification and wage-hour areas of law, including against claims of joint employment.  The Firm’s expertise in defending lawsuits gives our attorneys unique insight into how best to proactively address problematic internal policies and practices that can lead to unwanted governmental investigation or litigation.