Franchisor Joint Employer Liability in a “Me Too” and COVID-19 World

franchisor joint employer liability
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Joint Employer liability is frequently the subject of much discussion. In California, the issue often arises in the wage-and-hour context—and is commonly litigated in the context of franchisor/franchisee liability. In Salazar v. McDonald’s Corp., the Ninth Circuit recently held that the franchisor was not liable for purported violations of the California Labor Code due to its lack of control over the day-to-day operations of the franchises. Importantly, the court found that the franchisor did not “suffer or permit” the plaintiffs to work because it could not prevent the plaintiffs from working.

One might think the result would be the same in alleged sexual harassment cases because (again) franchisors typically do not exert day-to-day control over their employees or their workplace behavior. Nor are they routinely responsible for training employees about sexual harassment prevention.

So what happens if a franchisee’s employee complains to the franchisor about sexual harassment experienced at the local level? Does the franchisor have an obligation to respond and/or correct it? Similarly, does the franchisor have any obligations to ensure that its franchisee’s employees are properly trained regarding workplace conduct and, more importantly, the prevention of sexual harassment?

As the “me too” movement gains traction, will the potential for liability in sexual harassment cases increase? California’s Fair Employment and Housing Act creates a separate cause of action for the “failure to prevent” harassment and discrimination. FEHA’s regulations also require management (and soon employee) training on sexual harassment every two years.

Answering Legal Banner

Another problem franchisors often face is that the general public (and sometimes even the franchisee’s employees) do not realize that the franchisor does not employ franchise employees. However, just because franchisors are not automatically liable for the conduct of their franchisees does not mean they should completely ignore these issues. The franchisor has an interest in protecting its brand reputation, and responding to every franchisee employee issue with “it’s not our problem” is simply not good business.

When confronted with customer and employee complaints involving franchisees, franchisors should be compassionate and understanding, but also avoid blaming the franchisee and making it clear that franchisees are ultimately responsible for employment and HR issues. Franchisors should be in contact with the franchisee in question and make sure the franchisee (1) is aware of the issue and (2) has resources in place to properly address the issue. For example, providing too much assistance to a franchisee responding to a sexual harassment complaint from its employee could make the franchisor liable for any legal action that stems from such a complaint.

In a similar vein, how should a franchisor respond to an employee’s complaint that a franchisee employer is not following the franchisor’s guidance for claims related to lack of PPE in order to protect against COVID-19?

Franchisors must be careful not to mandate that franchisees adopt any specific employment policy or engage in any specific practice. Of course, franchisors can require their franchisees to comply with employment laws and regulations, but they should leave the particulars of how franchisees should apply them up to the franchisees.

Like most aspects of legal compliance in a COVID-19 world, the general guidelines above may not neatly apply and may need to be modified to fit an ever-changing landscape. In determining whether to mandate various COVID-19-related policies and procedures for their franchisees, franchisors should ask themselves, “Does this procedure protect our customers and brand or is it solely limited to protecting franchisee employees?” For example, a franchisor’s requiring all of its franchisees’ employees to wear masks could be justified to protect customer health and safety, and thereby protecting “the brand” as a whole. Conversely, a franchisor’s requiring its franchisees to adopt a specific COVID-19 employee-leave policy would have little or no impact on the customer experience. In this scenario, the mask mandate would not materially increase joint employer risk whereas the policy mandate likely would.

All of these issues arise and should be considered in the specific context in which they arise. At the forefront, it would be a prudent best practice to respond to any complaints with appropriate care and consideration. At the same time, franchisors should be clear that the resolution of these issues lies at the franchisee level.

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