As a franchisee, you own your own business. This means forming your own corporation or limited liability company (LLC), taking on your own loans, entering into your own contracts, and being responsible for your own success or failure. For many franchisees, it also means hiring your own employees.
The employment relationship is fraught with legal issues, so much so that there is an entire segment of the law (called “labor and employment law”) devoted to issues involving employers and employees—just as “franchise law” governs the relationship between franchisors and franchisees. However, the nature of the franchise relationship also has unique implications for employment; and, as a franchisee, it is critical to have a clear understanding of your employment obligations and your employees’ legal rights.
Are You Preparing to Take on Employees as a Franchisee?
There are textbooks, statutes, regulations and decades of court precedent dedicated to defining the employer-employee relationship. So, there is far more to hiring employees than we can possibly discuss here. As a franchisee, if you are preparing to hire, here are some of the basic principles you need to know:
1. Your Employees are Your Employees
While there has been much discussion about franchisors’ exposure to liability for claims filed by franchisees’ employees, one principle that was never in doubt is that franchisees’ employees are franchisees’ employees. When you hire employees, you make the hiring decisions, you are responsible for making payroll and you are obligated to respect your employees’ regulatory, statutory and Constitutional rights.
2. Local, State and Federal Laws Provide Strong Protections to Employees
Federal laws such as the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act apply to employers nationwide, and states and municipalities across the country have adopted their own employment laws and regulations as well. In many cases, these state and local laws are more protective of employees than the federal legislation.
3. Employees vs. Independent Contractors
The employment relationship and the independent contractor relationship are very different. While there are tax, administrative and liability benefits to hiring independent contractors under appropriate circumstances, it is ultimately the nature of the relationship – not the employer’s wishes or the parties’ agreement – that determines whether an individual is properly classified as a contractor or employee. If you hire someone to show up at your office, store or gym everyday to work from 9:00 to 5:00, he or she is most likely an employee, and you must treat the relationship accordingly.
4. Employers are “Vicariously Liable” for Their Employees’ Conduct
As an employer, you are vicariously liable for your employees conduct within the scope of employment. This means that you can be sued for your employees’ mistakes, which also means that you need to make your hiring (and insurance coverage) decisions very carefully.
Goldstein Law Firm | Franchise Counsel for Franchisees Nationwide
Our firm provides nationwide legal representation for franchise-related legal disputes, and founding attorney Jeffrey M. Goldstein has over 30 years of experience exclusively representing franchisees and dealers. If you need legal advice about a franchise or employment-related legal issue, we invite you to call (202) 293-3947 or contact us online for a free and confidential consultation.