Franchise business owners are responsible for following a multitude of government rules and regulations. In May 2012, a Massachusetts court issued a $3 million damages judgment to Coverall, a privately held janitorial services franchisor found to have misclassified its employees as franchisees. Misclassification of employees is one of many expensive human resources management risks that both franchisors and franchisees face.
Here are 10 RECOMMENDED STEPS to protect your franchise brand and business:
- Understand your human resources obligations. Check your franchise system’s operations manual and employee handbook for guidelines, procedures and responsibilities concerning employee management, workers compensation and HR compliance.
- Ensure that you have adequate insurance protection. Make sure you have sufficient coverage provided by workers compensation, general liability, directors and officers, and employment liability insurance. Don’t underestimate your exposure to costly litigation resulting from disputes such as sexual harassment, wage and hour or discrimination.
- Don’t rely on your accountant for HR expertise. Your accountant can keep you informed of your payroll and tax obligations. However, the administration and processing are likely handled by a third-party provider. Know your provider’s responsibilities, as well as their limits. Don’t rely on your payroll provider to identify or prevent any lapses in worker classification, compensation or wage and hour compliance.
- Know your obligations under federal law regarding your workforce. The federal government is actively pursuing companies to reduce the misclassification of employees to capture more tax revenue. Another goal is ensuring compliance with labor laws, which provide important benefits and protections to employees. Misclassifying employees as independent contractors can increase your risk for an IRS audit. Franchise system operators may want to consider focusing on this area in training or operations manuals to help franchisees successfully achieve compliance. Learn more by visiting the US Department of Labor website.
- Subscribe to franchise industry-specific legal sources, such as the International Franchise Association’s legal events, e-newsletters and committee information-sharing. Keep in mind that what legally affects one franchise system can easily impact other franchise operations that are similarly structured.
- Consult with an employment attorney to establish or review your local HR policies and procedures to help you stay in compliance. Knowing and achieving compliance before any potential problems arise is your best protection against HR-related lawsuit risks.
- Seek an outsourced HR service partner. Professional Employer Organizations (PEOs) are expert full-service human resource companies that take control of a franchisee’s employee management functions. PEOs help franchise system operators and owners identify potential risks, mitigate exposure and transfer their employment-related liabilities and responsibilities.
- Avoid costly discrimination lawsuits. It is illegal to discriminate among numerous protected classes of people, as listed on the website, or retaliate against those who file a complaint of discrimination. Become familiar with the many US laws passed since the Civil Rights Act of 1964 first established protection against discrimination based on race, color, religion, national origin or gender. Visit the US Equal Employment Opportunity Commission website to learn how to avoid workplace discrimination.
- Confirm your new hires’ legal status by using E-Verify. Operated by the US Department of Homeland Security in conjunction with the Social Security Administration, this Internet resource was established for employers who are committed to maintaining a legal workforce. It determines the employment eligibility of newly hired employees.
- Protect the value of your brand. How much is your brand worth? How much would you spend to protect it? Widely publicized violations of employment laws or regulations could damage your brand over and above the costs for legal defense, penalties and judgments. Today, bad news spreads virally on the Internet. Take action to prevent your brand from being damaged in the eyes of consumers, prospective franchise owners and the community.
Franchise business owners can spend an inordinate amount of time achieving compliance and assuring that employee paperwork is in order to avoid compliance risks and liability. No franchise system operator wants to be devastated by a multi-million-dollar catastrophic damages bill, such as Coverall suffered. You may find it is well worth your time to prioritize becoming informed and compliant.