New Texas law says franchisors are not employers of franchisees or their employees

This story was written by Edward L. Puzzo, J.D.

Texas has enacted legislation, effective September 1, 2015, specifying that franchisors will not be considered to be the employers of--or in a co-employment relationship with--either franchisees or the franchisees' employees for any purpose, including employment discrimination law, wage and hour law, minimum wage law, professional employer organization law, workers compensation law, or workplace safety law.

This follows the 2014 issuance of unfair labor practice complaints by the National Labor Relations Board (NLRB) against fast food franchisor McDonald;s and a number of its franchisees, finding them to be joint employers.

When Sen. Charles Schwertner introduced the legislation (Texas Senate Bill 652), he acknowledged that the impetus for the bill was "recent decisions by the NLRB that have expanded the definition of an `employer,' called the common understanding of a franchisor-franchisee relationship into question, and opened the door to lawsuits against franchisors for the actions of franchisees."

The legislation does provide an exception for situations in which a franchisor has been found by a court of competent jurisdiction in the state to have "exercisted a type or degree of control over the franchisee or the franchisee's employees not customarily exercised by a franchisor for the purpose of protecting the franchisor's trademark and brand."