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New Texas law: Franchisors generally not employers of franchisees’ workers

Franchisors will have to limit the degree of control, prove they are not joint employers.

By Philip B. Rosen, Kristin L. Bauer | Updated on July 14, 2015
Under a new Texas law, franchisors won't be considered employers of their franchisees employees as long as they don't control employment-related decisions. (Photo: Shutterstock/Tashatuvango)

The Texas Labor Code has been amended to provide that a franchisor is not considered an employer for claims related to employment discrimination, wage payment, the Texas Minimum Wage Act, and the Texas Workers’ Compensation Act, among other laws. According to S.B. 652, the franchisor will not be considered an employer unless the franchisor has been found by a state court of competent jurisdiction to have exercised a type or degree of control over its franchisee or its franchisee’s employees not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand. The amendment goes into effect on September 1, 2015.

The bill was introduced by state Senator Charles Schwertner, reportedly because of franchisors’ concerns that recent National Labor Relations Board (NLRB) actions targeted franchisors for franchisees’ labor law violations. The NLRB’s general counsel has issued unfair labor practice complaints asserting that certain franchisors are “joint employers” with their franchisees who allegedly have violated employees’ rights. This has opened franchisors to lawsuits for the actions of franchisees, critics assert. Current NLRB decisions treat two companies as joint employers only if both exercise a significant degree of direct control over the same employees. Direct control requires that putative joint employers have control over the terms and conditions of employment of the subject employees. This includes hiring and firing, setting work hours, determining compensation and benefits, and exercising day-to-day supervision.

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