One of the challenges of being a franchisor, and let me tell you, you should know, is having a lawsuit brought against you against one of your many franchisees. Why do lawyers go after franchisors when their clients have a dispute with a locally owned and operated franchisee? For a very obvious and simple reason; lawyers are after a lot of money. You see, while a franchisee can be profitable, they just won’t have a lot of cash flow or capital behind them, so even if the attorney wins, there’s not much to be gained.
Fortunately, franchisors have large franchise agreements that protect themselves from such liability, and there are clear lines and legal separations between the entities in these agreements. Of course, that doesn’t stop government regulatory agencies, class action lawyers, or local litigants from going after franchisors. I recently recalled a Pennsylvania Commonwealth Court ruling “that a franchisor would not be considered a joint employer of an employee of a franchisor.”
Of course, consider all the potential jurisdictions and all the states that may see this differently, also consider all the unions that would like to see large corporations (franchisors) have to undergo union formation, everything from franchisors of fast food restaurants. to car dealership franchise systems.
We have seen similar unsuccessful cases in favor of large companies in the past in several states, such as a large overnight transportation company with independent contractor drivers, or those drivers who are independent contractors of companies based on rideshare applications. For franchisors, whenever a major case is won, this helps preserve the legal franchisor / franchisee relationship and thus protects the franchisor from incessant lawsuits stemming from franchisee missteps or legal challenges.
If franchisors were seen to be joint employers with their franchisees, they would face massive unionisation and would have to have health insurance, workers’ compensation, etc. for all employees in the entire system. If you consider that a franchisor could easily be operating in 40-50 states in the United States alone, this would be a nightmare undertaking and could be enough to trigger a system-wide franchise chain collapse, leading to potential bankruptcy. For your franchisees that are essentially all the same small businesses. The loss of jobs and the loss of small businesses would be catastrophic for our nation.
It would only help a handful of laws, and unions, everyone else loses and the consumer would pay more because franchise systems are a well-oiled and efficient machine, highly competitive in the prospective sectors of our economy. Think about it, be great, don’t hesitate!