New Law Limits Franchisors’ Joint Employer Liability Exposure In Wisconsin

Published by James Egle on

In an environment where franchisors are increasingly concerned about being deemed “joint employers” with their franchisees, the Wisconsin Legislature has provided some welcome relief. It has enacted legislation that provides franchisors with assurances that they will not be treated as an “employer” of the employees of a franchisee for purposes of Wisconsin laws pertaining to unemployment insurance, worker’s compensation, employment discrimination, minimum wage and wage payments, merely because the franchisor retains rights of quality control under the parties’ franchise agreement.

2015 Wisconsin Act 203 adopts the definition of “franchisor” found in the Code of Federal Regulations. Such franchisors may still be treated as an employer of its franchisee’s employers in the following situations: (a) the franchisor has agreed in writing to assume that role; or (b) the franchisor has been found by the applicable department or division of state government to have exercised a degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purposes of protecting the franchisor’s brand.

Recent rulings and policy initiatives of the National Labor Relations Board and U.S. Department of Labor have suggested that indirect rights to control another entity’s employees may be sufficient to support a finding that a joint employer relationship (i.e., that more than one entity is an employer of an individual employee) exists. But under the federal Lanham Act, franchisors must impose quality control standards in order to maintain the integrity and enforceability of their trademarks. These quality control standards may be considered to constitute such indirect control.

The dilemma faced by a franchisor in this environment: if the franchisor enforces quality control to protect the trademark and brand, it risks having joint employer liability imposed and being held liable for acts of its franchisees’ employees (for whom, in the vast majority of cases,  the franchisor has no legal or contractual right to control); if it does not, it weakens the strength of its marks. The Wisconsin bill provides assurance to franchisors offering franchises in the state of Wisconsin that enforcement of quality control standards will not result in an imposition of joint employer liability under Wisconsin law. 

Filed Under: franchise, Franchisor, Franchisee, joint employer

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