Tennessee Legislature Clarifies that Franchisee Employees Are Not To Be Deemed Employees of the Franchisor

The Tennessee legislature in Public Chapter No. 114 clarified Tennessee law on who is considered the employer of franchisee employees.  This was signed into law by Governor Bill Haslam on April 10, 2015 and took effect immediately.  Specifically, employees of franchisees as well as franchisees themselves will not be “deemed to be an employee of the franchisor for any purpose.”  This obviously is important in several different areas of the law.  It can certainly be important for numerous employment law issues including Tennessee employee discrimination or fair labor standard cases.  Additionally, if employees are deemed to be employed by a franchisor, this could lead to an increased level of litigation against franchisors for claims based in premises liability or automobile liability (when a franchisee is involved in an incident or claim).

The Tennessee legislature felt it was important to clarify this issue mainly because of concerns for litigation as well as recent changes in the law on this issue at the national level.  The NLRB recently found that McDonald’s corporation is a joint employer of franchisee employees and is therefore responsible for the actions of the franchisee on labor related issues.  This has caused great concern among franchisor’s for their possible joint liability in certain circumstances.

This new law in Tennessee is an attempt to clarify that under Tennessee law, franchisors will not be considered employers of franchisee employees.  This does not mean that the Federal NLRB findings are nullified.  However, it is a step in the right direction within the context of Tennessee law to protect the important legal separate relationship between franchisors and franchisees.  The entire statute will be found in TCA Title 50, Chapter 1, Part 2 (it has not yet been assigned a formal statute number at this time).  The new statute in its entirety provides as follows:

(a) Notwithstanding any voluntary agreement entered into between the United States department of labor and a franchisee, neither a franchisee nor a franchisee's employee shall be deemed to be an employee of the franchisor for any purpose.

(b) For purposes of this section “franchisee” and “franchisor” have the same definitions as set out in 16 CFR 436.1.