Good News for Wisconsin Franchisors: You’re Not Considered Joint Employers

On March 2, 2016, Governor Scott Walker signed an important bill into law. Senate Bill 422, otherwise known as the Franchise Protection Act, will make it difficult for franchisors to be considered employers of the individuals working for their franchisees.

This decision comes after courts and state legislatures debated over who should be responsible (and therefore have to pay) for labor protections. Wisconsin is one of seven states that recently passed a law excluding a franchisor from being considered the employer of individuals working at franchises. The law clarifies that corporate franchisors are not responsible for workers’ compensation, unemployment benefits, enforcing minimum wage and employment discrimination and wages.

The Franchise Protection Act is in response to a decision made in August 2015 by the National Labor Relations Board to change its longstanding standard for determining the employer relationships between workers, local franchisees or subcontractors and corporate franchisors. The board determined that the franchisor jointly employs its franchisees’ employees. The International Franchise Association pushed back, explaining that the new “joint employee” standard was an “existential threat” to franchising.

But under Wisconsin’s new law, a franchisor is considered an employer only if the franchisor agrees to the role in writing, or the state finds the franchisor to hold distinct and extraordinary control over a franchisee. This means that Wisconsin franchisors are not unfairly liable for the actions of franchisees, which will ultimately prevent frivolous lawsuits and encourage franchisees to act responsibly. It also allows a franchisee to continue to independently run his or her business—which means paying insurance and maintenance costs, setting wages and maintaining banking relationships.

“A franchisee is in business for him or herself. They hire the folks, they fire the folks, they decide what the pay is, what the benefits are. People don’t decide to become franchisees to be store managers or general managers along with their franchisors as joint employers. That’s not how the model works, that’s not why people do it,” said Jeff Hanscom, director of state government relations at the International Franchise Association.

Texas, Utah, Tennessee, Louisiana and Indiana have passed similar laws. A bill is waiting to be signed by Georgia’s governor and one is being considered by the legislature in Oklahoma.

“With the passage of the Franchise Protection Act, Wisconsin is sending a strong message that we believe the current standard should remain in effect, so franchises can have the certainty needed to grow and hire more employees,” said Sen. Chris Kapenga, who authored Wisconsin’s bill.