Franchise agreement recitals declaring your franchisee to be an independent contractor, not an employee, are not dispositive!
Until now, the spotlight has never shined so brightly on franchising and, specifically, on whether franchisors are responsible for their franchisees’ activities.
On July 29, 2014, the NLRB’s General Counsel announced its plan to sue McDonald’s for numerous unfair labor practices at franchisee-owned restaurants, claiming McDonald’s is the joint employer of the franchisees’ workers. Weeks later, on August 27, 2014, the Ninth Circuit issued twin decisions holding thousands of FedEx Ground drivers were actually FedEx employees, not independent contractors, as FedEx claimed. While FedEx’s arrangement with its drivers is not a franchise, the rulings expose examples of vulnerable practices that are also found in certain franchise arrangements. The very next day, the California Supreme Court ruled that franchisor Domino’s was not responsible for sexual harassment allegedly committed by a supervisor at a franchise store, finding that Domino’s did not automatically become a joint employer or responsible for its franchisee’s wrongdoing simply because it set brand standards for running franchise stores. Rendered in the space of four short weeks, these rulings show just how unsettled and confusing vicarious liability law is for franchisors in today’s business market.