Contributed by Deborah S. Weiss

The Georgia Legislature recently enacted legislation that should send an encouraging signal to franchisors. House Bill 548 was passed unanimously in both the State House of Representatives and the State Senate, making Georgia the first state to adopt legislation that prohibits a franchisee from being considered an employee of its franchisor. The legislation, which classifies the franchisee/franchisor relationship as a contractual relationship rather than an employment relationship, is the result of coordinated efforts by the IFA and the American Legislative Exchange Council (ALEC), to formally characterize the franchise relationship. Prior to the enactment of HB 548, ALEC adopted a Resolution on the Misallocation of Employee Classification Laws, which served as a precursor to the Georgia legislation.

The new Georgia law, which is codified as part of Georgia’s workers’ compensation law, states that “[i]ndividuals who are parties to a franchise agreement as set out by the Federal Trade Commission Franchise Disclosure Rule [FTC Rule] [PDF], 16 C.F.R. 436.1 through 436.11, shall not be deemed employees for purposes of this chapter.” 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.