Texas Will Exclude Franchisors as Employers of Franchisees, Franchisees' Employees

Author: Ashley Shaw, XpertHR Legal Editor

July 16, 2015

A franchisor will not be considered an employer of its franchisees or their employees under an amendment to the Texas Labor Code. Subject to a limited exception, if a franchisee's employee were to file a lawsuit, the franchisee would incur liability as the employer without sharing joint liability with the overarching corporation. The amendment takes effect September 1, 2015.

SB 652 states that a franchisor will not be liable for the actions of a franchisee and its employees for any purpose, up to and including laws relating to all of the following:

  • Employment discrimination;
  • Wage and hour;
  • Minimum wage;
  • Professional employer organizations;
  • Unemployment insurance;
  • Workers' compensation; and
  • Workplace safety.

A franchisor will be covered under the Texas Labor Code as an employer of a franchisee or a franchisee's employees if a court finds that it exercises a type or degree of control over a franchisee or the franchisee's employees that is "not customarily exercised" to protect its brand and reputation. In other words, if a franchisor is acting as if it is a franchisee's employer, and a court finds that it is indeed an employer, then it will be covered under the Texas Labor Code.

The extent of the type or degree of control necessary to find a franchisor to be a covered employer will likely be determined in future court cases. Recent National Labor Relations Board (NLRB) findings have addressed the issue and pending cases will continue to develop the test to be used for franchisor liability.