Defining the Franchisor-Franchisee Employment Relationship

At the beginning of a franchise relationship, franchisors spell out the conditions of franchising in the Franchise Disclosure Document (FDD). These conditions affect most areas of the franchisee’s business, but one area that can lack clarity is with regard to hiring and employment decisions. There are good reasons why franchisors typically avoid directly providing hiring guidelines to franchisees, the primary reason being to remain agnostic to the franchisees hiring practices and, by doing so, avoid being considered a joint-employer to franchisees. However, franchisors have a tremendous amount of insight and value to provide franchisees on hiring and recruitment – so how can franchisors surface these insights to their franchisees while staying out of employment decisions? Let’s start with a background on co-employment.

What is Co-Employment Regulation?

Co-employment regulation put forth by the National Labor Relations Board (NLRB) all comes down to the question of who is employing the employee. Recent NLRB decisions have obscured the answer for some franchisors and their franchisees. We hear from franchisors all the time, wondering how they can support franchisees with hiring best practices and software without encroaching on their freedom to make independent employment decisions. Typically employment decisions, such as offering 401(k) or health care benefits, are made independently by the franchisees. A franchisor would only have a hand in employment decisions if it was a joint-employer with its franchisees. For the most part, franchisors have little interest in being joint-employers with their franchisees, but they are likely interested in avenues to improve franchise success and support. Ignoring franchisee employment success is short-sighted; franchisors should support their franchisees with optional best practices but should not mandate adherence to those guidelines.

National Labor Relations Board’s potential changes of co-employment standard

The topic of co-employment resurfaced after a decision by the National Labor Relations Board to consider McDonald’s a joint employer of its franchisees’ employees, following claims of discriminatory employment practices on the part of a franchisee – a decision that only added to the ambiguity around how franchisors should support their franchised stores. As a result, the industry is becoming more conscious of the risks of co-employment and the effects it could have on the traditional franchise business model (Entrepreneur). Robert Cresanti, Executive Vice President of Government Relations & Public Policy at IFA, said the NLRB’s decision could be damaging to franchisees, “because it creates this uncertainty, it creates a questions of who owns responsibility for the employees… So it leaves the franchisee in a quandary of who’s actually in control and what new labor responsibilities they may have” (Franchise Times).

Just this month, however, McDonald’s released a statement regarding the NLRB’s decision, saying that it does not ‘direct or co-determine the hiring, assignment, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees.” (Fortune). A spokesperson reminded the press that the decision could impact thousands of McDonald’s franchisees who provide millions of jobs, and it could set a precedent for the entire franchise industry if upheld. Other franchisors are also warning of the potential impact of the decision, which the industry at large considers to be overreaching, but franchise groups are not the only entities standing up the the NLRB. State legislatures, such as Wisconsin’s, are joining the franchise joint-employment discussion and passing bills in defense of the franchised business model. Several other states have considered passing similar laws or have already done so following the decision which the franchise community claims upends decades of legal precedent. While the impact of the NLRB’s decision is still unclear, the franchise industry is becoming more vigilant about what it might mean.

Offering optional hiring guidelines without becoming a joint employer

Franchisors are now exploring options on how to stay compliant with joint-employment regulations, while still ensuring their franchisees are set up for success. Offering a careers page portal, for example, is one solution franchisors can provide without assuming liability for franchisees actions. Freshii, a fast-casual restaurant chain, offered its franchisees a careers page portal on their website, but did not mandate any recruitment policies or procedures. They were involved in a case that determined its actions were compliant with the law and were not considered a co-employer under any NLRB standard. By making it clear in franchisee agreements that franchisors will not dictate or control matters of employment, franchisors can offer optional human resources tools and best practices. Franchiors who take this approach can provide value and optional structure to franchisees without infringing on the employment practices of the individual business.

Recommendations

CareerPlug specializes in working with franchisors across industries, from fit clubs to quick serve, and we have compiled several suggestions for navigating co-employment issues:

Franchisors should

• Clearly define the relationship between them and their franchisees regarding employment policies.
• Provide best practice insights, but avoid mandating rules related to job descriptions, steps in hiring process, etc.
• Be able to offer the optional benefit of an applicant tracking system that incorporates brand standards, while preserving independent ownership, management, and configuration by the franchisees.

Franchisees should

• Educate themselves on avoiding discriminatory hiring/firing and comply with all employment laws and regulations.
• Establish and manage their own accounts with recruiting and applicant tracking software providers directly, but they should leverage resources/providers that ensure a consistent brand experience and provide best practices when possible.
• Adhere to to recruiting and hiring practices that they believe will best benefit their business

Next Steps

While the franchise industry is uncertain about how co-employment regulation will evolve, savvy franchisors are seeking to provide proven hiring processes that franchisees can choose to adopt. We know that most franchisees did not get their start in recruitment, and a little help from the franchisor can go a long way in ensuring that stores are hiring effectively. It’s easy to see how consistent effective hires can empower a franchisee to grow and produce more revenue, and, as more franchisors offer optional hiring insights and tools to their franchisees, they can expect to garner the profits associated with efficient, effective franchisee hiring practices. It’s a win-win.

Please note: The information in this blog post is intended to provide useful information on the topic covered, but none of the information herein should be construed as legal advice or a legal opinion.

Sources:

[1] Addady, Michal. Fortune. The McDonald’s Business Model May Be in for a Big Change. March 10, 2016

[2] Kaiser, Tom. Franchise Times. NLRB: McDonald’s Joint Employer of Franchise Employees.  

[3] Taylor, Kate. Franchise Industry Strikes Back at  NLRB’s ‘Joint Employer’ Decision. September 23, 2014

[4] Franchising.com Wisconsin Passes Pro Franchisee Bill.