A civil rights suit in the US is seeking to hold the McDonald's Corporation responsible for a franchise owner's alleged actions. What does this mean for franchisors in the UK?
Franchises have been previously seen as independent businesses in the United States, which has meant that franchisors have not been legally responsible for their franchises' activities. But a lawsuit filed in January 2015 argues that McDonald's franchises are "predominately controlled" by their corporate parent and, therefore, the franchisor should be held responsible for the franchisee's alleged actions. This ‘control' allegedly flows from McDonald's Corporation setting national policies, appointing representatives to oversee franchises, issuing an operational manual to franchise owners and coordinating training for all managerial employees.
The National Labor Relations Board in the US had already held that McDonald's Corporation was responsible as a "joint employer" for labour violations that took place in its franchise locations in a separate case towards the end of 2014.
These new developments in the US will understandably unsettle franchisors in the UK, who may begin to question what liability, if any, they attract from the operations of their franchises. The answer is: it is difficult to imagine a situation in which franchisors would be held to be joint employers with their franchisees in the UK or any other way in which they would be legally liable for how the franchises treat their employees.
However, the US cases are a reminder for franchisors to review franchise agreements to ensure that they have an indemnity against any liability that could result from how a franchise operates its business. In any event, there is a real risk of reputational damage to the franchisor's brand should franchisees mistreat their staff, whether it is in breach of UK employment legislation or good industrial practice.
Many franchisors are now reviewing whether their franchisees are following good employment practices, which includes actively supporting franchises by organising a coordinated point of access to approved employment law advice with employment policies and documents that have been drafted with the franchised business in mind.
To assist in this process we have developed The Hub, an all-embracing Employment support package. For more information about how this might help your franchisees follow better employment practices please click here.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.