Franchisor protection toolkit whitepaper c 11 2016

Franchisor Protection Toolkit

Introduction

The uncertainty surrounding joint-employment challenges to the franchising model have left many Franchisors wondering: “What should I be doing now?”

Those of us in the franchise community will have to stay abreast of legal developments and be able to adapt to new best practices. And we’re going to need some tools to help us do that.

While the National Labor Relations Board (NLRB) has prompted dialogue on jointemployment liability, it is important to keep in mind that the NLRB is neither a static nor the only voice on this issue. The NLRB itself could be subject to shifts in its makeup whenever a new president takes office. The opinions of various judges in varied jurisdictions – both lower and appellate courts – will surely have an impact as well. And many states have enacted statutes expressly stating that the Franchisor is not the joint employer of the Franchisee’s employees.

We also know that franchising will survive this. From the beginning, the NLRB has said that Franchisors may be exempted from joint-employer liability to the extent their indirect control is limited to legitimate interests in protecting the quality of their product or brand. At

core of the joint-employer liability issue is the Franchisor’s ability to exercise control and the amount of control a Franchisor asserts over the Franchisee’s employees. The decisions in this area have and will presumably continue to evolve in a very fact-specific way, and they most certainly will reference the Franchisor’s operations and training manuals and Franchise Disclosure Document (FDD). INSIDE:

What’s the Big Deal Anyway?

You may be asking yourself why every franchise publication you receive mentions this topic and why your inbox is flooded with emails that sound urgent and menacing whenever they mention “joint employer”. What is the big deal anyway?

Ultimately, it is an issue of liability. Your attorney can explain in more detail the effect being deemed an “employer” will have in areas such as workers’ compensation, direct and vicarious liability, taxes, hiring and firing. But the short version is that joint-employer status could increase a Franchisor’s exposure to litigation on a variety of fronts, creating an incremental burden (and cost) to police various matters that are best handled by the Franchisee.

Likewise, in a joint-employment situation, Franchisees will lose some degree of control over hiring and other employment decisions for its own business – making it much more difficult to be in control of their own destiny. If Unions are permitted to collectively bargain with the Franchisor, wages and benefits will be affected, ultimately impacting Franchisee returns.

These same Franchisees will be forced to compete with non-franchised small businesses that are able to operate with lower labor costs. And while the working man may benefit in the short term, ultimately, the increased costs to both Franchisor and Franchisee will be passed back to the consumer, or will make the franchised business model less competitive, threatening the jobs of the folks that these actions were designed to serve.

Moreover, this situation is exacerbated by the lack of clarity currently surrounding the NLRB’s posture. While joint-employer status is deemed to be “fact specific” to each franchise organization that is scrutinized, the NLRB has not published any “black or white” standards that clearly define where the line is drawn on this issue.

An Ounce of Prevention – Audit Your System:

While there can be no guarantees in this uncertain environment, especially in light of the Franchisor’s undeniable need to protect the brand, there are a number of steps that some Franchisors are taking to minimize their exposure to this issue.

1. Strategic Review

One of the most important things any Franchisor can do is to conduct a Strategic Review of their operations from the perspective of joint-employer liability. Hiring an objective and impartial third party is often the best place to start. This type of Strategic Review or audit, undertaken by a neutral third party can help demonstrate controls on the system which are unnecessary and could be landmines for jointemployer liability for the Franchisor. This strategic review should, at a minimum, include the following:

• Ever ything points back to the FDD. The FDD, operations manuals and training materials you use should always be in sync. While you will rely on experienced franchise counsel for the particular language and disclosures, be sure your counsel works with your franchise development consultant to assure consistency with business decisions.

• Vendors recommended for the franchise system – software, HR, payroll processing – should have franchise experience and demonstrate an understanding of legal challenges Franchisors face.

• Consider implementing Franchisee Advisory Councils so the Franchisor can demonstrate that Franchisees play a greater role in key decisions that are made which impact Franchisees.

• Review all processes and procedures dealing with how you and your support team interact with Franchisees.

• Ensure that you have an adequate system in place to train and test your employees on issues that could potentially trigger jointemployment problems.

• Inter views with field representatives and other Franchisor personnel to determine issues that come up often and need to continue to be addressed in Franchise Agreements and quality control documents versus those that are currently included and may not need to be. This will likely vary system by system.

• An audit of the Franchisor’s public persona: evaluate in what ways is it clear or not (advertising, signage, consumer comments) that the Franchisor emphasizes the independent nature of its Franchisees.

• Continue benchmarking your program against those of Franchisors who have beat challenges in the joint-employment and vicarious liability areas.

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2. Operations Manual Review

An assessment of the Franchisor-Franchisee relationship begins with a thorough review of the existing Operations Manual. The Operations Manual acts primarily as a training guide for new Franchisees and a reference tool for established Franchisees. Most Franchisees will leverage off of the Operations Manual when training their own employees. A well-written franchise Operations Manual will help the Franchisor avoid vicarious liability and joint-employment issues by clearly establishing the Franchisee as an independent contractor and explaining important areas of compliance. Because the NLRB has not provided a bright-line test, Franchisors will need to evaluate the necessity of brand specifications versus the risks of such specifications being viewed as control of Franchisees’ operations. As a starting point, Franchisors will need to look at each of the areas below.

An Operations Manual Review should include:

• A review of the establishment-phase requirements for the Franchisee. Are Franchisees advised to develop their corporate presence so it reflects their independence as a business owner? It’s important to consider the name of the Franchisee’s business entity, email addresses, employee applications, paychecks, contracts, business cards and other indicia of business ownership.

• A look at internal paperwork, invoices, signage, etc. to be sure it reflects the actual Franchisee corporate entity, not the Franchisor’s brand name.

• An analysis of those por tions of the Operations Manual relating to Field Representatives to assure there is appropriate guidance for them on labor and employment matters.

• A review of the management responsibilities of the Franchisee with careful attention paid to recommended vs. mandatory requirements in areas touching employee matters.

• A review of all forms and checklists in the current Operations Manual to identify any weaknesses.

• A goal of streamlining the Operations Manual and other documentation to ensure the Franchisor is not imposing unnecessary controls over the Franchisees or their employees.

• A review of any human resources-related content to make sure that it is accompanied by appropriate disclaimers and that there is no overreach by the Franchisor relative to these issues. Recommendations and information provided as “best practices” should be clearly identified and it should be made clear that the Franchisee is the only employer of their employees and all employment decisions are solely in their area of responsibility.

An Operations Manual review of this type might reveal other shortcomings not specifically related to joint-employment issues such as in the organization of the material, the comprehensiveness and/ or level of detail in the manual, the presentation of the material, the consistency of the manual to the legal documents, and the adherence of the manual to current standards, laws, and franchising best practices.

3. The Train-the-Trainer Manual

Training is at the heart of any franchise program. It is one of the main benefits that makes a franchise valuable to Franchisees and is what Franchisees rightfully expect and anticipate receiving from their Franchisor. Not only must the Franchisor train the Franchisee on all the required elements of business operation, the Franchisor must also train the Franchisee on training its employees. The training of employees should be the responsibility of the Franchisee and their manager in order to avoid any hint of a joint-employer relationship. To further distance itself from joint-employment or vicarious liability concerns, the Franchisor should encourage its Franchisees to develop and implement their own policies on employment-related matters. At the same time, it is imperative that the Franchisee’s employees are well-trained on how to uphold brand standards.

This is where the Train-the-Trainer Manual enters. A Train-theTrainer Manual is essentially a tool that the Franchisor can provide to its Franchisees that will enable those Franchisees to consistently train their individual employees on brand standards without directly involving the Franchisor in this training.

Train-the-Trainer Manuals and programs will typically be directed to the franchise owner and primary manager of the Franchisee’s business as its audience, as they would be the ones facilitating the program with their employees. The focus will be on brand standards and will aim to find the right balance between recommendations and requirements. With the high employee turn-over rate in some industries, Train-the-Trainer programs are increasingly including a digital and interactive experience so the trainer does not have to always be physically present to conduct the training.

4. Franchise Training Videos and Learning Management Systems

Franchise Training Videos are an efficient way to communicate brand requirements without interacting directly with the employees of your Franchisees. Although the Franchisor will produce these videos, the employee being trained must ultimately answer to the Franchisee – a message that can be clarified in these videos. The scripts of any training videos should be reviewed with consideration given to joint-employment and vicarious liability concerns and they should be approved by franchise legal counsel.

By utilizing training videos, the Franchisor can define the system’s best practices and ensure that brand standards are properly communicated to the lowest levels of the organization.

In addition, any modern franchise system needs to build a dynamic, interactive Online Learning Management System. There are countless sources/vendors for online learning systems, and Franchisors will want to use one that understands franchising and stays abreast of the evolution of legal challenges in the franchise sector.

5. The Field Consultant Manual

Once the Franchise Operations Manual and the FDD reflect current franchise best practices, the Franchisor can then add the Field Consultant Manual to its toolkit to provide further support for compliance with joint-employment concerns. The Field Consultant Manual is a highly-specialized and customized guide which is used to assess and improve Franchisee operations, as well as provide specific guidelines for troubleshooting specific problems. The Field Consultant Manual teaches field staff how to be effective at enforcing brand standards without interacting with Franchisee’s employees other than management. This tool teaches the Field Consultant how to communicate with the Franchisee before, during, and after field visits with guidelines for documenting the visit. Franchisors will want to limit Field Consultants to dealing directly with the Franchisee’s management rather than Franchisee’s employees. More importantly, the use of this tool helps the Franchisee manage problems that become apparent during field visits.

Because each franchise system is unique, not all franchisors will need to address all the issues outlined here and there are likely others we have not addressed. In the end, Franchisors will have to constantly balance brand protection against some of the joint-employment triggers we’ve discussed.

About iFranchise Group

If you are interested in having an outside third party develop these tools, the iFranchise Group can help. iFranchise Group (www.ifranchisegroup.com) is a leading franchise consulting firm that offers the ills of the nation's top professionals in franchise strategic planning, operations training and documentation, franchise marketing and sales, advertising fund management, franchise recruitment, and digital solutions for emerging and established franchise companies worldwide. iFranchise Group does not provide legal advice.

For more information on developing the tools that may help avoid joint-employment liability, contact us at info@ifranchisegroup.com or by calling (708) 957-2300