House Passes Joint Employer Legislation

by: Amanda Doran Dempsey

On November 7, 2017, the House of Representatives passed H.R. 3441, the Save Local Business Act.  The Save Local Business Act clarifies the standard for determining joint-employer status, an issue that has been unsettled since the National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., et al., Case 32–RC–109684, on August 27, 2015.

In Browning-Ferris, the NLRB adjusted its standard for assessing joint-employer status under the National Labor Relations Act.  Prior to the decision, the NLRB’s standard for determining whether an entity was a joint-employer of another entity’s employees was whether the entity had “direct control” over matters related to the employment relationship.   The Browning-Ferris decision modified that standard, and held that an entity may be considered a joint employer even if the entity has “indirect control” or even reserved or unexercised authority over the entity’s employees and employment relationship.

Despite the fact that the parties in Browning-Ferris case were not involved in the franchise industry, the Browning-Ferris decision left franchisors grappling with how the decision may be applied to franchising, and the age-old question of where to draw the line when exercising common controls to maintain brand uniformity and protection.

The decision was appealed to the US Court of Appeals for the DC Circuit.  The appeal is pending.

Rather than await the results of the appeal, Congress took legislative action to reverse the ruling and clarify the joint employment standard with the Save Local Business Act.  The Act states that an entity may only be considered a joint employer of another entity’s employees “only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.”  This more limited definition will encourage those interested in franchising, or in partnering with compatible businesses to do so without being held responsible for the employment law violations of others.

The Act received some bipartisan support, with a small number of Democrats voting in support of the bill.  The Act may face tougher scrutiny in the Senate, where it will need the backing of at least eight Democrats to pass.

We will continue to monitor the progress of the Save Local Business Act.  If you have questions about how the Act may affect you or your business, please contact us.

 

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The “Protect Florida Small Business Act” (SB 750), has died in the Florida senate’s Judiciary Committee. Although Florida Senate’s Regulated Industries Committee passed SB 750 by a 7-2 vote, the judiciary committee refused to schedule it for a hearing. SB 750 was aimed at “protecting” Florida franchisees from franchisors who are currently allowed to terminate their franchise rights without cause or warning, but it drew criticism from franchise associations. The International Franchise Association (IFA) strongly opposed the bill and opined that the government should not get involved in what is essentially a private business contract. The IFA believed that this bill would undermine franchising in Florida and cause franchisors to sell their franchises elsewhere in the United States, where they could better protect their brand. The Coalition of Franchisee Associations (CFA) supported the bill and the protections it would have provided to franchisees. The CFA felt that this bill would not put a damper on franchising in Florida because the state is a desirable place to do business. This marks the end of SB 750 for the 2017 legislative session in Florida.

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Wisconsin Senate Bill 422 addresses joint employment

On March 2, 2016, Governor Scott Walker(R), of Wisconsin, signed Wisconsin Senate Bill 422 into law. This law is important to franchisors because, under this new law, franchisors are not considered employers of their franchisees or their franchisees’ employees for purposes of state employment laws relating to worker’s compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments, unless the following applies:

  1. The franchisor has agreed in writing to assume that role.
  2. The franchisor has been found to have exercised a type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand.

As of now this law is only applicable in Wisconsin. However, it is good news for franchisors. It is in direct contrast to recent publications by several federal agencies ( e.g., NLRB) which have tried to make it easier for franchisors to be considered joint employers with their franchisees. Hopefully, other states will follow suit and pass similar state laws.

As always, we will keep up to date on any developments in this area and keep you informed.

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Changes to the California Franchise Relations Act

On October 11, 2015, California Governor Jerry Brown signed California bill AB 525 into law, amending the California Franchise Relations Act, and imposing additional constraints upon the franchisor-franchisee relationship. The new restrictions are not retroactive, but will apply to any franchise agreement that is entered into or renewed on or after January 1, 2016 or to franchises of an indefinite duration which may be terminated without cause.

First and foremost, the new law makes it more difficult for franchisors to terminate a franchise agreement for good cause. The law changes the definition of “good cause” for termination from “failure of the franchisee to comply with any lawful requirements imposed upon the franchisee by the franchise agreement” to “failure of the franchisee to substantially comply with any lawful requirements imposed upon the franchisee by the franchise agreement.” Additionally, once the franchisee is given notice of the failure, the franchisee is allowed sixty (60) days to cure the failure, which doubles the thirty (30) day requirement in the prior law.

Next, the new law prohibits franchise agreements from preventing the sale or transfer of the franchise as long as the buyer is qualified under the standards the franchisor uses to approve new or renewing franchisees. Under the new law, the franchisor must provide the franchisee the standards it uses for approving new or renewing franchisees. Once notified by the franchisee of the pending transfer, the franchisor has sixty (60) days to approve or disapprove the sale or transfer.

Finally, subject to certain exclusions, the new law requires franchisors who terminate or fail to renew a franchise to purchase all of the inventory, supplies, equipment, fixtures, and furnishings acquired under the terms of the franchise agreement. Additionally, if it is found that the franchisor improperly terminated the agreement or failed to renew, the franchisor will be liable for damages, including “the fair market value of the franchised business and the franchise assets, and any other damages caused” by the violation.

Please do not hesitate to contact me if you wish to discuss how this new law may impact your franchise.

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Franchise legislation introduced in the US Congress

Two bills were introduced in the US Congress last week that would significantly impact the franchise relationship as well as the ability to obtain financing from the SBA in order to acquire a franchise.  The first bill, The Fair Franchise Act (H.R. 3196), addresses some of the same issues covered by many state relationship laws such as non-renewal, transfer of franchise units and termination.  The bill would prohibit mandatory arbitration and requires the franchisor to act in “good faith.”

The second bill, the SBA Franchise Loan Transparency Act (H.R. 3195) would require the Franchisor to provide specific financial information to prospective franchisees in order to obtain SBA financing.  The thinking behind H.R. 3195 is that by providing prospective franchisees with additional financial information regarding a franchise system, the prospective franchisee will be able to make a better, well-informed decision regarding the purchase of a franchise.

While the first bill is a re-tread of many state relationship laws, the second bill, H.R.3195, would appear to add significant procedural requirements to an already heavily regulated process in order to obtain SBA financing.  The International Franchise Association has already voiced its opposition to both bills while the Coalition of Franchisee Associations praised the Fair Franchise Act.  I will monitor these bills as they move through the legislative process.

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