March 7, 2016Client Alert

New Wisconsin Law Declares Franchisors Not Employer of Franchisee Employees

On March 4, 2016, Wisconsin joined the ranks of states that have enacted legislation to protect local franchisees from overreach by the federal government. This new law draws a clear line between franchisors and franchisees, requiring state enforcement agencies to exclude franchisors as employers of franchisees or franchisee employees. The law applies to work performed beginning on March 4, 2016.

The law creates new statutory provisions for workers compensation, unemployment compensation insurance, employment relations and other statutes. This provision states that a franchisor is not the employer of a franchisee or a franchisee’s employees, unless the franchisor has agreed, in writing, to be the employer; or if the Department or Division finds that the franchisor exercised a “type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand.”

The new law has earned the praise of the International Franchise Association (IFA), the world’s largest organization representing franchise owners. IFA President and CEO, Robert Cresanti, sees the new law as a move to protect the franchise industry, as well as the jobs and opportunities it creates.

While the new law certainly affects how Wisconsin state agencies will approach joint employer status, the law does not necessarily prevent the National Labor Relations Board (NLRB), Equal Employment Opportunity Commission, Department of Labor or Internal Revenue Service from applying their own joint employer standards. As we wrote in the fall of 2015, the NLRB departed from its previously long-held joint employer test (whether a joint employer exercises control over the employees’ terms and conditions of employment) and instead moved to a new test, which only examines whether an employer possesses such control. In fact, earlier this year, Wage and Hour Division (WHD) Administrator David Weil published the Administrator’s Interpretation, which outlines further DOL guidance on finding joint employer status under the Fair Labor Standards Act or the Migrant and Seasonal Agricultural Worker Protection Act. The guidance ended by stating that the WHD would “continue to consider the possibility of joint employment…the expansive definition of ‘employ’ as including ‘to suffer or permit to work’ must be considered when determining joint employment...” The new expansive definition of “employ” makes it likely the federal government would still find joint employer status, even when a state agency may not.

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