Pennsylvania Record

Wednesday, February 19, 2020

Pennsylvania Supreme Court to review franchisor as possible statutory employer

By Russell Boniface | Aug 15, 2016

General court 09

HARRISBURG – The Pennsylvania Supreme Court has agreed to hear a Workers' Compensation case to decide if a franchisor is liable as a statutory employer for injuries sustained by a franchisee employee.

In Saladworks, LLC v. Workers’ Compensation Appeal Board, a Saladworks franchisee employee who was injured on the job sought Workers’ Compensation benefits from both the franchisee and franchisor, but the franchisee did not have Workers’ Compensation coverage. 

A Workers’ Compensation judge determined that Saladworks was not the employer of the employee. This decision was reversed by the Workers’ Compensation Appeal Board, which viewed a franchise relationship as a construction contract and found that Saladworks is indeed a statutory employer and therefore is liable for injuries to its franchisee employees.

The Commonwealth Court reversed the board’s decision and reinstated the judgment of the Workers’ Compensation judge that Saladworks was not a statutory employer. The Commonwealth Court found that Saladworks’ “main business is the sale of franchises to franchisees. ... [I]t is not in the restaurant business or the business of selling salads,” and therefore not a statutory employer and not liable. 

The case has been appealed to the Pennsylvania Supreme Court and oral arguments will be heard in the spring.

“The franchisor-franchisee relationship is different from a contractor-subcontractor relationship,” Katherine Puccio, associate attorney at Pepper Hamilton, told the Pennsylvania Record

“The Pennsylvania Legislature made the decision that general contractors are liable for their subcontractors. The general contractor is a statutory employer. That is accepted across the nation in the contractor/subcontractoe context. A franchise relationship is more of a trademark license than a work subcontract.”

In the Saladworks case, the Workers' Compensation Appeal Board said a franchisor can be considered a contractor within Section 302(a) of the Pennsylvania Workers Compensation Act, and therefore found that that Saladworks could be considered a statutory employer.

“Part of the reason the franchisor/franchisee model works is that the franchisors gets to be in the business of selling franchises — not in the business of selling whatever the product is that the franchisee sells — and has no control over franchise employees,” Puccio said. 

“That is the franchisee’s responsibility and is an entirely a different business because the franchisor doesn’t want to be involved. A franchisor exerting no control over the employees of its franchisees shouldn’t be considered a statutory employer under section 302(a).”

Puccio said the board’s decision that a franchisor can be a statutory employer is troubling because it didn’t provide an explanation. Furthermore, the board’s decision is contrary to its decisions in a similar case the previous year. 

In Dorvil v. Prof Pizza It’s a Domino’s Pizza, an employee was injured in a car accident while delivering pizzas for Professional Pizza, a franchisee of Domino’s. Professional did not have Workers’ Compensation insurance. 

The Workers’ Compensation judge found Domino’s liable but the board overturned the decision and found that Domino’s had no control over its franchisee’s employees.

“They had a Domino's Pizza case where they said a franchisor/franchisee relationship is distinct from a contractor/ subcontractor relationship and section 302(a) does not apply,” Puccio said. 

“In the Saladworks case the Workers' Compensation Appeal Board didn’t give a reason why. They didn’t even address the Domino's Pizza case. It is a complete change of opinion. When there is decision like this with no explanation, the franchisor is left in the lurch because they don’t know how to operate.”

Puccio says designating a franchisor to be a statutory employer starts to blur the line of the franchisor’s role. “It takes away the legal distinction of a franchisor and a franchisee,” she said. 

“There is a trend now in which courts are taking a harder look at that distinction. This Saladworks case has the potential to call into question the entire reason as to why you would operate under a franchisor/franchisee model.”

Puccio says there will be far-reaching implications if a franchisor is a statutory employer “Will that mean a franchisor should begin exerting control?” she said. “What if a franchisor doesn’t want to exert control? It raises those questions.”

Want to get notified whenever we write about Pennsylvania Supreme Court ?

Sign-up Next time we write about Pennsylvania Supreme Court, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Pennsylvania Supreme Court