HARRISBURG – Franchisors in Pennsylvania were handed a legal victory in the debate over whether a franchisor can be considered the employer
of its individual franchisees.
In a case involving a Saladworks franchisee employee's on-the-job injury, the state Supreme Court on Dec. 16 allowed a Commonwealth Court ruling to stand, which allows the franchisor to avoid liability.
“The court held that Saladworks was not a statutory employer
because it was in a different line of business than its franchisee,” Alexander
S. Radus, an associate at Fox Rothschild LLP, told the Pennsylvania Record. “As
the court noted, Saladworks sells franchises, not salads.”
The franchisee’s employee was injured on
the job, and the franchisee did not have Workers’ Compensation insurance. As a
result, the courts were left to determine whether franchisor Saladworks LLC
could be held liable under the commonwealth’s Workers’ Compensation law.
“(The Commonwealth Court) ruled that Saladworks was not
liable because Saladworks did not employ the worker,” Radus said.
Although the state Supreme Court originally agreed to
hear the case, Radus said it eventually dismissed the appeal as “improvidently
“This means the decision of the Commonwealth Court remains
intact,” Radus said. “We don’t know why the PA Supreme Court dismissed the case,
because there is no opinion explaining its position.”
Radus said the Commonwealth Court’s decision illustrated the
relationship between franchisors and franchisees.
“The franchisor establishes the products and services that
the franchisee will sell and provides the franchisee with a system to operate
the business,” he said. “However, the franchisee, not the franchisor, is the
employer of the franchisee’s employees.”
The state Workers’ Compensation Act requires
employers to provide Workers’ Compensation coverage for employees. Radus said employees
are generally covered by their direct employers, but if a direct employer
doesn’t have coverage, employees may be able to hold an indirect employer
liable if it is a “statutory employer” under the act.
“The important statutory language is this: A company is a ‘statutory
employer’ if it contracts with another ‘to have work performed of a kind which
is a regular or recurrent part’ of its business,” Radus said.
Before the Saladworks
case got to the Commonwealth Court, it was decided by the Workers’
Compensation Appeal Board, which ruled that Saladworks was a statutory employer
because it contracted with its franchisee to perform work which was a “regular
or recurrent part of” Saladworks’ business.
The Commonwealth Court reversed the board’s decision.
“It recognized the difference between Saladworks’ business
model and the business engaged in by its franchisees,” Radus said. “Specifically,
the Commonwealth Court understood that making salads and running a restaurant
was not a regular or recurrent part of the franchisor’s business.”
Radus said he was surprised that the state Supreme
Court agreed to take the case.
“The Commonwealth Court’s decision was firmly grounded in
the law and showed a strong understanding of the franchise model,” he said. “This
may be why the PA Supreme Court ultimately dismissed the appeal as
In addition, Radus said “Pennsylvania is a relatively
franchise-friendly state.” He said other states require franchisors to go
through a state registration process; Pennsylvania does not.
The case involved a worker who slipped in a Philadelphia Saladworks restaurant and was left with injuries to both knees, but who discovered upon seeking Workers' Compensation that the franchisee did not carry the insurance.