We have recently posted about the increase in complaints filed with the National Labor Relations Board alleging that franchisors and franchisees are joint employers. There have also been several cases in the last few months where employees tried to argue that they were the franchisor's employees so as to claim unpaid wages under the Fair Labor Standards Act ("FLSA"). Employees and their attorneys can be very creative when trying to locate additional sources of settlement funds.
Joint employment is a concept that is not limited to claims under the National Labor Relations Act or the FLSA. Claims that two different entities are joint employers can arise in discrimination claims brought under Title VII of the Civil Rights Act and the Americans with Disabilities Act. The regulations enforcing the federal Family and Medical Leave Act ("FMLA") actually specifically address joint employers and their obligations under the FMLA.
As employees continue to push the limits of who is and who is not an "employer" under these statutes, franchisors may be asking themselves what to do to protect them from liability. First, it should be noted that the mere existence of a franchisor/franchisee relationship does not automatically create a joint employment relationship. Although federal circuits differ somewhat in the relevant factors to consider, usually the determination boils down to whether the franchisor has control over hiring, firing and discipline of the franchisees' employees.
If you are a franchisor that does exercise control over your franchisees' employees there are three key things that you can do to protect yourself:
- Have written policies of harassment and insure that your employees and the franchisees' employees are trained on complying with the policies;
- Have an effective complaint procedure. It is not enough to tell employees that you do not tolerate discrimination and harassment. You must insure that complaints are promptly addressed and where necessary, the appropriate remedial action is taken; and
- Check your and your franchisees' insurance coverage. Employment Practices Liability Insurance ("EPLI") coverage is available to cover employment related claims including wrongful termination, discrimination and harassment.
There are still many employers that do not realize that EPLI coverage is even available. You may be aware of EPLI and even have coverage for claims raised by your employees but none whatsoever for claims raised by your franchisees' employees. This may be because of the way "employee" is defined within the policy in that it excludes any employee not directly on your payroll.
One option is to purchase a third-party endorsement to your EPLI coverage, which would provide coverage in the event that a third-party claims that your employee harassed him or her. It can be sticky, however, where a franchisee employee alleges that he or she is your employee as this is not the normal "third party" claim for which most policies provide coverage.
A solution to this potential problem is to require that franchisees that have EPLI coverage purchase a franchisor endorsement that provides coverage to the franchisor in the event that one of the franchisees' employees files a claim against the franchisor.
The beginning of the year is a perfect time to make sure you start off 2015 on the right foot. In order to ensure that you have adequate protection, you should review your EPLI policy, especially the exclusions to those policies, to determine if additional endorsements need to be purchased. You may also want to review the best options with your insurance broker.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
