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The franchise business structure creates a separation between the franchised business and franchise units. The units exist as separate entities to the franchised business. As a result of this structure, you do not share a clear-cut relationship with franchisees’ employees. This article explains the legal relationship franchisors share with their franchisee’s employees and the legal responsibility that may arise.
Franchisors and Franchisee Employees
In a business, to have legal responsibility for another person often means a relationship of employment exists. You share a contractual franchisor-franchisee relationship, which you create and define in your franchise agreement. Therefore, franchises typically do not create an employment relationship, and franchisees are generally not considered employees. They are usually regarded as independent contractors, meaning they would be responsible for their own employees.
The UK Legal Framework
There is no specific UK law relating to franchises. However, two areas of law are particularly relevant to determining your employment-related responsibility level: contract law and employment law.
Contract Law
You can review the terms of your franchise agreement and further contracts you share with franchisees to determine (and limit) your responsibilities towards the franchisees’ employees. Your level of commitment can vary based on contractual arrangements. The terms within these contracts govern your duties and responsibilities towards franchisees’ employees. Accordingly, thoroughly check these documents if you are unsure of your obligations.
Employment Law
Despite not being typically considered your employees, the responsibilities you owe to franchisees’ employees can form the basis of the type of relationship you share with them. Judges tend to avoid establishing an employment relationship between franchisees and franchisors. These decisions retain a degree of separation between yourself and your franchisees’ employees.
Courts are typically reluctant to establish an employment relationship between franchisors and their franchisees’ employees. However, this may change depending on the particular circumstances of a case. A judge will look at the specific events of each case to determine whether a relationship of employment exists. If a franchisee, their employee, or another person takes a matter to court, the judge will look at the circumstances of your relationship with the franchisees and their employees.
Whether you have an employer-employee relationship can be based on the level of control you exercise as a franchisor. A judge may consider you an employer if you exercise a lot of control over the operations of individual franchise units and the franchisees’ employees. Such a level of control creeps beyond the usual responsibilities of a franchisor and could mean you would owe further responsibilities towards franchisees’ employees. This can result in a very legally complex issue.
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Best Practices for Franchisors
Some tips to ensure clarity over your responsibility towards your franchisees’ employees include:
- ensure that your responsibilities towards franchisees and their employees are well-drafted and clearly defined in your franchise agreement and franchise operations manual (ensuring the units of the franchise operate with the correct level of independence from you);
- understand all contracts and documentation relevant to your relationship with franchisees and their employees to understand your obligations further;
- ensure that your actions as a franchisor align with these agreements and that you do not exercise excessive control over the operations of franchise units; and
- if there is a specific matter you are concerned about, it is crucial to seek legal advice.
International Changes
There have been shifts in the domestic law of other countries relating to the responsibilities of franchisors and employment law. For example, Australian law expanded franchisors’ responsibility towards franchisees. This legal change does not apply to UK law but may indicate room for future national development. Keep an eye on legal changes in this area. Your obligations may change if UK law moves in the same direction as other territories.
This handbook covers all the essential topics you need to know about franchising your business.
Key Takeaways
In the UK, franchisors are not typically responsible for franchisees’ employees. Franchisees are generally considered independent contractors and responsible for their own employees. The UK legal framework does not have specific laws for franchises, but contract and employment law can be particularly relevant in determining your level of responsibility.
The terms of the franchise agreement and further contracts can limit your responsibilities towards franchisees’ employees. Judges have yet to establish an employment relationship between franchisors and franchisees. However, the level of responsibility you owe may change based on the terms of the contracts and the level of control you exercise over franchisees and their employees.
If you require legal assistance with issues relating to your franchise and the employees of your franchisees, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Typically, franchisors are not responsible for franchisees’ employees. Ensure you are familiar with all your responsibilities in the contracts and documents relating to your franchise relationship. The relationship can become more legally complex and problematic if you exercise too much control over the franchisee or their employees.
Some tips to ensure clarity over your responsibility towards your franchisees’ employees include drafting a franchise agreement and franchise operations manual that outlines your responsibilities towards franchisees and their employees. Likewise, understand all contracts and documentation relevant to your relationship with franchisees and their employees. It is also critical to act according to the agreements and do not exercise excessive control over the operations of franchise units. Where necessary, you can seek legal advice.
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