Tag Archives: franchise my business

Texas moves on joint employment issue

On May 14, 2015 the Texas House passed Senate Bill 652 which states that a franchisor is not the employer of its franchisees or its franchisee’s employees. The bill is in response to recent actions by the National Labor Relations Board and the Board’s expansion of the standards of joint employment in the franchise setting.

The bill would amend Texas law to establish that unless a franchisor exercised direct control over a franchisee or franchisee’s employees beyond what is necessary to protect the franchisor’s brand, the franchisor will not be deemed an employer of a franchisee or a joint employer of the franchisee’s employees. The legislation is similar to the joint employment standard previously utilized by the National Labor Relations Board. The Texas bill addresses employment issues in the context of employment discrimination, wage payment, minimum wage and workers compensation.

The issue of joint employment has been front and center in franchising since the NLRB issued complaints against McDonald’s USA, LLC and franchisees of McDonald’s, as joint employers of the franchisee’s employees, alleging various labor law violations.  The complaints are based upon the NLRB’s new standard that by possessing the ability to exercise control over a franchisee’s employment policies (whether exercised or not), the franchisor becomes a joint employer.  This standard is a departure from the 30-year-old standard that treat two companies as joint employers only if both exercise a significant degree of control over the same employees.

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Filed under Franchise Insight, Franchise Law, In The News, The Franchise Legislation Monitor

Franchisors should focus on the brand to mitigate risk.

The standards used to determine joint employer status and the proper identification of an individual as an independent contractor within franchise systems are changing.  In order for a franchisor to minimize liability associated with joint employer status, vicarious liability and misclassification of employees as independent contractors, franchise systems must focus on controls that relate primarily to the protection of a franchisor’s brand and the integrity of the product or services provided to the marketplace by its’ franchisees.  By focusing on these essential elements of a franchise system, rather than the day-to-day operation of a franchisees’ business, the franchisor may mitigate the risk associated with the on-going attack against the franchise business model.  Specifically, franchisors should avoid the following;

  • Imposing employment policies/practices upon the franchised business
  • training employees of the franchised business
  • imposing scheduling requirements and pricing controls upon the franchised business
  • securing contracts/customers on behalf of the franchised business
  • sub-leasing office/retail space to the franchised business
  • acting as a guarantor/surety of the franchised business

In order to mitigate risk, franchise systems should examine their franchise agreements, operating manuals and internal policies to determine where a system may step over the line of policing essential policies to ensure brand integrity and into the day-to-day business operations of its’ franchisees.

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NJ Sick Leave Legislation Alert

Since San Francisco enacted mandatory sick leave legislation in 2006, efforts to pass similar laws have gained momentum in municipalities and states across the nation. Recently the New Jersey assembly became the latest state legislature to advance a bill, A2354, which would require most employers to provide their employees with annual paid sick leave. If it becomes law, and odds are strong that it will, it would make New Jersey the fourth state – after California, Connecticut, and Massachusetts – mandating paid sick time for all workers, and it would raise a number of challenging legal and compliance issues for both small and large franchised businesses.

At the core of the bill is the imposition of a legal obligation on employers to provide one hour of earned sick leave for every 30 hours an employee works. Employers with an average of fewer than 10 employees (which includes part-time and temporary workers) must allow each employee to accrue and use up to 40 hours per calendar year; employers with an average of more than 10 employees would have to allow up to 72 hours per calendar year.

As with any statute, however, the devil is in the details. The following is a brief summary of the bill’s provisions that pose the greatest risk to employers’ bottom lines:

Broad Application. Permissible use of earned sick leave is fairly broad under the bill. It permits an employee to use sick leave for themselves or a family member for: preventive medical care; the diagnoses, care, treatment or recovery from mental or physical illness; physical injury; and any adverse health condition. It also provides paid leave to employees who miss work due to closure of the workplace or a child’s school due to a public health crisis.

No Preemption Means Conflicting Employer Obligations. Many communities in New Jersey have already passed mandatory sick leave laws in the past year, including Newark, Jersey City, and Trenton, although the maximum leave provided is generally 40 hours. The state bill, however, does not include a provision which preempts those municipal laws, which would quickly lead to compliance conflicts for employers who have workers covered under different (or multiple) sick leave laws. This will quickly lead to confusion.

Disproportionate Impact on Small Businesses. While proponents argue the state bill is a pro-business and pro-public health policy that will ultimately reduce worker absenteeism and lower health costs for employers, businesses which heavily rely upon part-time workers, such as small local business, restaurants and seasonal businesses on the New Jersey coast, stand to disproportionately suffer adverse financial impact as a result of the legislation’s presumption that a large employer is one with 10 or more total employees. It’s common for these businesses to be staffed with part-time workers consisting of students and people with other full- or part-time jobs, and a small business can easily reach the 10-employee threshold simply because their workers have limited availability.

Practical Legal Ramifications. The bill would also impose certain record-keeping requirements and specifies when an employer may require documentation from an employee requesting or taking sick leave. In addition, the bill expands the legal rights of employees in two ways that raise fairly significant ramifications for even the most well-intentioned employer. First, if an employee makes any statement involving paid sick leave or invokes any right under the law, the employee receives a 90-day window in which any “adverse action” they suffer related to their job is presumed to be retaliatory. “Adverse action” is a broad term which, depending on the circumstances, could include merely changing the employee’s shift schedule. Second, unlike other states in which enforcement is entrusted to a state agency, the New Jersey bill permits an employee to sue the employer to enforce the law’s requirements. So instead of deferring resolution of disputed sick leave matters to a state regulator, aggressive plaintiffs’ lawyers will enjoy a wind fall.

It will be at least several months until the bill comes before the full New Jersey legislature for vote, and even if passed will require an openly reluctant Governor Chris Christie to sign it into law before it can take effect. However, the recent passage of similar leave laws in New Jersey’s three largest cities has led many observers to conclude it’s only a matter of time before New Jersey enacts state-wide legislation. Employers would therefore benefit from monitoring the bill and reviewing their existing sick leave policies to determine whether and to what extent its likely passage in New Jersey will affect workplace coverage and operating costs.

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Filed under Franchise Basics, Franchise Insight, Franchise Law, In The News, Restaurant & Hospitality Law, The Franchise Legislation Monitor

Tipped Minimum Wage Increase Likely?

A recent debate over federal minimum wage requirements began in November 2013 with the introduction of a bill by Senator Tom Harkin, a Democrat from Iowa. Originally titled the Fair Minimum Wage Act, it was reintroduced on April 8th as the Minimum Wage Fairness Act. Aside from making several changes to existing federal law when it comes to worker pay, the most visible prong of which has been an increase of the federal minimum wage from $7.25 to $10.10 for workers covered by the Fair Labor Standards Act, the proposed bill would also phase in increases to the minimum hourly wage for the nation’s estimated 3.3 million tipped workers to about $7.07 over the course of 6 years from the current federal minimum of $2.13, then indexing it to inflation and finally pegging it to 70% of the non-tipped minimum wage.

There isn’t much dispute that Senator Harkin’s proposed legislation is well-intended, though economists are divided when it comes to the anticipated effects that such a law would have on low-wage workers and the economy as a whole. But whether and to the extent the nation’s waiters, bartenders, and casino dealers are in the same proverbial boat as their non-tipped “low-wage” co-workers is another matter entirely.

Some of the biggest supporters of the bill such as Restaurant Opportunities Centers United argue that the increases will lift low-wage workers out of poverty, particularly women with children, and reduce the reliance by those workers on food stamps, thus effectively reducing taxpayer burdens for welfare programs. In contrast, the restaurant industry has pointed out that the mean hourly wage of tipped workers, including tips, currently stands at $10.10 (according to the Bureau of Labor Statistics) almost $3.00 above the existing minimum wage and equal to the minimum wage proposed by the bill. Restaurant operators therefore argue that this issue is much ado about nothing and a solution in search of a problem.

Further, industry organizations like the National Restaurant Association point out the obvious strain these kinds of increases can have on employers, particularly small businesses which employ the bulk of minimum wage workers, when restaurants already operate on incredibly slim margins of about 3-5%. The result, they argue, would be a reduction in workers’ hours, slow hiring, increased prices for consumers, and the limitation of business expansion. In an uncertain political and economic climate already unsteadied by implementation of the 2010 Affordable Care Act, restaurant employers are understandably alarmed by the potential further erosion of their bottom line.

What’s next? Currently the proposed bill remains under review in the Senate, but odds are low it will pass. Local lawmakers, however, have been addressing the issue within their own states, with more than half of states having minimum wages above the federal minimum or which will take effect soon, and according to the New York Times twenty-four states have already set minimum wage for tipped workers above the federal minimum of $2.13. Seven more states require employers pay tipped workers the same minimum wage as their non-tipped counterparts. Pennsylvania is one of the states which currently pegs minimum wage to the federal minimum for non-tipped workers and to $2.83 for tipped workers. Recently, two Democratic state senators from Southeastern Pennsylvania (Daylin Leach, D-Montgomery, and Mike Stack, D-Philadelphia) introduced a bill which would raise minimum wage for all workers in Pennsylvania to $12 per hour. However, none of the four Democrats in the primary race for Pennsylvania governor have expressed support for a hike quite so high. State treasurer Rob McCord, U.S. Rep. Allyson Y. Schwartz, and York County businessman Tom Wolf all support the wages proposed by the federal bill, with tipped minimum wage pegged to 70% of non-tipped wages, while only environmental protection secretary Katie McGinty has cited support for paying tipped and non-tipped workers the same minimum wage, though set to what amount has been unclear. Governor Tom Corbett has already signaled he does not support a minimum wage hike, making passage of any legislation during his term or any reelection term highly unlikely.

Meanwhile, a recent survey by the Lincoln Institute Spring 2014 Keystone Business Climate Survey of 378 Pennsylvania business leaders found while most opposed a minimum wage hike, 63% reported that the minimum wage in Pennsylvania has no impact on their businesses, “largely because their employees already earn above that standard.” In other words, many Pennsylvania businesses are already voluntarily paying more than the minimum wage, which raises doubts about both the purported beneficial impact for employees of an increased minimum wage and the necessity of mandating it at all.

While the federal and state climate regarding minimum wages remains uncertain, there is significant and vocal support from both sides of the issue, which from a strictly commonsense standpoint makes passage of any hikes in opposition to the status quo seem somewhat less likely. Nevertheless, it’s an issue we are watching closely for potential effects on our clients’ interests, particularly this year during the Pennsylvania governor’s race and federal election cycle.

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Save American Workers Act update

Sarah Ivy, Chair of G&K’s Executive Compensation and Employee Benefit practice, provided the following update.  Large franchisors and multi-unit franchise owners should take note.

We are watching the progress of H.R. 2575 very closely. Any upwards modification of the 30 hour per week standard in defining a full-time employee under PPACA would be a relief to those large employers subject to the pay-or-play penalties. We will keep you updated on the status of the Save American Workers Act bill. http://www.benefitspro.com/2014/02/04/committee-approves-full-time-worker-bill

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