Gov. Signs Chamber-Back Bill Providing Important Protections for Franchisors, Franchisees

January 12, 2016

Good news! Governor Snyder has signed two bills being pushed by the Michigan Chamber to clarify the instances an employee of a franchisee can be deemed an employee of a franchisor under state law.

Michigan Chamber-backed Senate Bills 492 and 493, now Public Acts 266 and 267 of 2015, stop the trickle-down effect of the National Labor Relations Board’s (NLRB) controversial Browning-Ferris ruling. The ruling, issued in August, reversed a line of decisions stretching back more than 30 years by substantially widening the circumstances under which a joint-employer relationship can be found. The new test was specifically intended by the NLRB to expand the circumstances in which one company can be held responsible or liable for the conduct of another. Specifically, the NLRB ruled that a joint-employer relationship cannot be limited to “directly and immediately” exercised control but, instead, an assumed joint employer may be liable if it “possesses the authority to control employees’ terms and conditions of employment”--regardless of whether such control is exercised.

The NLRB’s ruling promises to remake the franchise business model. Specifically, it threatens the autonomy of franchisees as independent business owners and operators under state and federal laws because franchisors will now face liability for the HR decisions of franchisees -- even when they do not exercise control over the franchisee’s day-to-day operations or employment decisions.

The legislative package prohibits state agencies and regulators from taking matters into their own hands by limiting the applicability of the NLRB’s ruling on state labor laws, something that is already happening in states like California. In addition, the legislation specifies that an employee of a franchisee is not an employee of a franchisor unless: 1) they share in the determination or co-determination of matters governing the terms and conditions of the employee’s employment; and 2) they both directly and immediately control matters related to the employment relationship as it relates to hiring, firing, discipline, supervision and direction. 

The franchise business model offers a turnkey solution for entrepreneurs wanting to start their own business with limited out-of-pocket investment and reduced risk. The legislative package is a victory for the thousands of small business owners in Michigan operating individual franchises. 

Please contact Wendy Block at wblock@michamber.com or (517) 371-7678 if you have any questions.