file0001348149In February, Connecticut HB 5069 was introduced into the Connecticut State House by Reps. Riley (D-46), Albis (D-99) and Mushinsky (D-85). The Bill, named “An Act Concerning Low Wage Employers”, requires a “Covered Employer” to pay a fee to the Connecticut Labor Commissioner on a quarterly basis equal to one dollar for each hour any employee has worked for the Covered Employer while not being paid the standard rate of wages predetermined by the Labor Commissioner pursuant to Connecticut Law. This fee would be paid with respect to any employee who works over five hundred hours.

Clearly, the bill is intended to support minimum wage laws and many may think this an effective enforcement mechanism.

BUT – the issue for the franchise industry is that a “Covered Employer” is not always an employer at all. It includes “any franchisor whose franchisees, collectively, directly employ at least five hundred employees in the state”. So, a franchisor with Connecticut franchisees would be required to pay this fee, which could be quite large, if the franchisee paid their employees less than the standard rate required by Connecticut.

So, what would be the franchisor’s choice if this bill were to become law? Should it tell its franchisees, which are separate legal entities, how they should pay their employees? This brings them into the realm of excess control of their franchisees’ businesses leading, perhaps, to vicarious liability concerns. Should they require indemnification by their franchisees – still perhaps involving control issues and tremendous administrative burden? Or should them be sure they don’t have franchisees which collectively have over five hundred employees which work over five hundred hours? This seems a bit absurd, and certainly muddies the waters respecting vicarious liability…..

This bill seems to redefine the franchise relationship – that which has historically been one of two separate legal entities entering into a business contract – by labeling a franchisor as the employer of its franchisees employees.