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Georgia law changes franchisor-franchisee relationship

A new Georgia law effective July 1 provides that people who are parties to franchise agreements are not to be considered employees for purposes of workers’ compensation benefits. The legislation essentially protects franchisors from comp claims by franchisees.

The new law covers individuals “who are parties to a franchise agreement as set out by the Federal Trade Commission franchise disclosure rule, and deems that the relationship between franchisors and franchisees is governed by the rules of contract law, not those of employment law.

The International Franchise Association (IFA), which backed the bill, said it was the first such legislation in the nation.

“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 law comes on the heels of closely watched litigation involving franchisors and franchisees in other states. In Massachusetts, for example, a court ordered a janitorial franchise called Coverall to pay $3 million in franchise fees to 100 people, mostly immigrants, whom it misclassified as franchisees.  

Coverall issued a statement that it “still believes its franchised owners are independent business owners and not employees; as such, they operate their commercial cleaning service businesses, maintaining accounts and hiring independently.”

Diane Cadrain is an attorney who has been writing about employment law issues for more than 20 years.

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