Franchise Regulation for the Fissured Economy
58 Pages Posted: 30 Aug 2017 Last revised: 8 Aug 2018
Date Written: August 28, 2017
Franchise stores employ nearly nine million people in the United States. Many franchisors, which own trademarks that they license to franchisees, are among the largest, most sophisticated corporations in the United States. Yet, franchise store employees are often paid below the minimum wage and frequently report unsafe workplaces and workplace discrimination. The thesis of this Article is that widespread employment law noncompliance in franchise stores is symptomatic of the failure of employment law to recognize the measures that franchisors use to protect their brand in franchise stores. Franchisors often develop intensive relationships with franchisees and franchise store employees as representatives of the brand, and provide franchisees with required or recommended personnel standards and business tools. These standards and tools can encourage employment law violations by triggering employment law obligations, which franchisees, who own and operate franchise stores, have little incentive to understand or follow. Yet the joint employer doctrine, which holds contractors that are joint employers jointly and severally liable for employment law violations by subcontractors, often does not recognize these measures as evidence of joint employment. Courts, accordingly, often reject joint employer claims against franchisors, even when the franchise relationship may mask or encourage employment law violations in franchise stores. Although most scholarship focuses on the joint employer doctrine to deter subcontractor employment law violations, this Article argues that improving compliance in franchise stores will require liability standards that recognize these unique features of franchising and do not depend on a joint employer determination. It identifies apparent agency and misrepresentation theories in existing law that would hold franchisors liable for employment law violations based on their representations to franchisees and franchise store employees. It offers these standards as a conceptual framework to deter employment law violations in franchise stores and evaluates potential over- and underdeterrence critiques. This analysis has important implications for the governance of contractual relationships in which a firm contracts out for employees who represent the firm’s brand to the consumer.
Keywords: Corporate Law, Employment Law, Remedies, Joint Employer Doctrine, Franchise Law, Law and Economics
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