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Georgia Now Protects Franchisors Disguising Employees as Franchisees

Larry by photographer Thomas Hawk
GA employers don't need to pay man wages if they can get him to sign a franchise
contract; photo/Tom Hawk

ATLANTA - As Coverall gets hit this month with a $3 million bill from a Massachusetts court for misclassifying its employees as franchisees, Georgia law can now boast, not in our state courts.

Governor Nathan Deal has now signed House Bill 548 after it unanimously passed in both the House and Senate, February 28 and March 26, respectively. The Georgia Legislature adopted the law that prohibits a franchisee from being considered an employee of its franchisor. The legislation views the relationship between franchisor and franchisee as one that is contractual, not employment. Plain and simple, if a franchise agreement is signed, the signee cannot be an employee, no matter how he is remunerated.

Considered a victory for franchisors, the big companies can thank the International Franchise Association, self-proclaimed to be the oldest and largest trade organization representing franchisors and franchisees.

"We applaud Georgia legislators for being the first state to formally recognize that the franchisee/franchisor relationship represents a contractual business relationship, not an employment relationship," said IFA Senior Vice President of Government Relations & Public Policy Judith Thorman. "As a result of this law, franchising will continue to thrive as a growing economic force in the Georgia economy across many business lines including restaurants, hotels, automotive, health care, business and personal services, and real estate, among other business sectors."

The IFA had assistance in getting the bill passed. The American Legislative Exchange Council (ALEC) adopted the Resolution on the Misallocation of Employee Classification Laws, which served as a precursor to the Georgia legislation.

Attorney Deborah Weiss of Fox Rothschild reported last week that the new state law, which is codified as part of Georgia’s workers’ Deborah_S_Weiss.jpgcompensation law, that “individuals who are parties to a franchise agreement as set out by the Federal Trade Commission Franchise Disclosure Rule, shall not be deemed employees for purposes of this chapter.”

Weiss further states, “Although this legislation protects franchisors from liability for workers' compensation claims made by their franchisees, it is not clear whether the new law will settle the question of the franchisee/franchisor relationship for all purposes, such as questions of agency or tort liability. Certainly, the step taken by the Georgia legislature is an encouraging development for those entrepreneurs considering whether to adopt the franchise model for their businesses, and for all franchisors wishing to offer franchises in the state of Georgia.

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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.