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By Daniel Parker Jett and Alexander Schindler
On February 16, 2023, the Fast Food Franchisor Responsibility Act (“AB 1228”) was introduced in the California State Assembly. AB 1228 proposes creating California Labor Code section 2810.9 to impose vicarious liability for various Labor Code violations upon, not only fast-food franchisees where the violations occur, but also their franchisors, as “joint employers.”
For certain violations of the Labor Code, franchisors would be held legally liable and financially responsible for infractions at their brick-and-mortar franchisees’ restaurants. The list of violations for which franchisors may be on the hook is extensive. In addition to Unfair Competition Laws [Bus. & Prof. Code, §§ 17200, et seq.], which are referenced in a vast majority of wrongful termination and wage-related complaints, franchisors would be jointly and severally liable for a franchisee’s unlawful employment practices under the California Fair Employment and Housing Act (“FEHA”) [Gov. Code, §§ 12940, et seq.), violations of the Annual Pay Data Report Act [Gov. Code, §§ 12999, et seq.], the California Private Attorneys General Act (“PAGA”) [Lab. Code, §§ 2698, et seq.], wage and hour violations, and many more. Also included in the Bill are orders issued by the Governor, Counties, or Municipalities regarding employment standards, worker health and safety, or public health and safety (i.e.,, the “COVID-19 lockdowns”). The potential scope of liability for franchisors under AB 1288 cannot be overstated.
The proposed bill applies to franchisors of fast-food chains, which are defined as (1) fast food restaurants (2) with 100 or more locations nationally (3) that share a common brand, packaging, products, services, or décor. While most California fast-food restaurants are of singular locations, the scope of this potential Code section would be enormous. Franchisees of Subway, Starbucks, and McDonald’s alone account for approximately 5,000 storefronts upon which franchisors must now maintain a watchful eye.
That said, the Bill provides a procedural cure-period for franchisors. In order for the franchisor to be joined as a co-defendant in a lawsuit, the plaintiff must provide written notice of the alleged violation to the franchisor with 30 days to “cure” the alleged violation. If the violation is cured and no notice of a subsequent violation is given, the franchisor cannot be joined as a defendant. These types of notices have been standard practice for decades in FEHA and PAGA cases, to little avail for corporate defendants.
AB 1228 defines the “curing” of a violation. The franchisor must ”abate” each violation alleged and ensure that the franchisee is in compliance with all applicable laws and regulations referenced in the notice. The proposed “curing” also requires that any worker against whom a violation was committed is to be “made whole.” Until and unless additional guidance is provided, it is unclear what actions a franchisor would need to take to satisfy this provision, short of giving the worker whatever was demanded. It is also unclear whether the franchisor would satisfy its obligation by “making whole” the aggrieved employee, or whether the franchisor would have to “make whole” all potentially affected workers at the franchise location.
It is also worth mentioning that AB 1228 also proscribes and invalidates any indemnity provision in the franchise agreement.
Finally, the Bill also provides franchisees with the legal tools to pursue monetary and injunctive relief from their franchisors. If a franchise agreement creates a substantial barrier to, or otherwise prevents, franchisee compliance with the applicable Labor Code provisions, franchisees are provided a cause of action under the Bill to obtain relief.
For additional information or questions, please contact Daniel Parker Jett at [email protected], Alexander Schindler at [email protected], or your local FMG attorney.