HOW MUCH DOES YOUR FRANCHISE BUSINESS BUDGET FOR LAWSUITS? Franchise business owners are responsible for following a multitude of government rules and regulations. Here are 10 RECOMMENDED STEPS to protect your franchise brand and business.

1. HOW MUCH DOES YOUR FRANCHISE BUSINESS
BUDGET FOR LAWSUITS?
Franchise business owners are responsible for following a multitude of
government rules and regulations. In May 2012, a Massachusetts court
issued a $3 million damages judgment to Coverall, a privately held
janitorial services franchisor found to have misclassified its employees
as franchisees. Misclassification of employees is one of many expensive
human resources management risks that both franchisors and
franchisees face.
Here are 10 RECOMMENDED STEPS to protect your
franchise brand and business:
1. Understand your human resources obligations. Check your
franchise system’s operations manual and employee handbook for
guidelines, procedures and responsibilities concerning employee
management, workers compensation and HR compliance.
2. Ensure that you have adequate insurance protection. Make sure
you have sufficient coverage provided by workers compensation,
general liability, directors and officers, and employment liability insurance. Don’t underestimate your
exposure to costly litigation resulting from disputes such as sexual harassment, wage and hour or
discrimination.
3. Don’t rely on your accountant for HR expertise. Your accountant can keep you informed of your
payroll and tax obligations. However, the administration and processing are likely handled by a third-
party provider. Know your provider’s responsibilities, as well as their limits. Don’t rely on your payroll
provider to identify or prevent any lapses in worker classification, compensation or wage and hour
compliance.
4. Know your obligations under federal law regarding your workforce. The federal government is actively
pursuing companies to reduce the misclassification of employees to capture more tax revenue. Another
goal is ensuring compliance with labor laws, which provide important benefits and protections to
employees. Misclassifying employees as independent contractors can increase your risk for an IRS audit.
Franchise system operators may want to consider focusing on this area in training or operations
manuals to help franchisees successfully achieve compliance. Learn more by visiting the US Department
of Labor website.
5. Subscribe to franchise industry-specific legal sources, such as the International Franchise Association’s
legal events, e-newsletters and committee information-sharing. Keep in mind that what legally affects
one franchise system can easily impact other franchise operations that are similarly structured.

2. 6. Consult with an employment attorney to establish or
review your local HR policies and procedures to help
you stay in compliance. Knowing and achieving
compliance before any potential problems arise is your
best protection against HR-related lawsuit risks.
7. Seek an outsourced HR service partner. Professional
Employer Organizations (PEOs) are expert full-service
human resource companies that take control of a
franchisee’s employee management functions. PEOs help
franchise system operators and owners identify potential
risks, mitigate exposure and transfer their employment-related liabilities and responsibilities.
8. Avoid costly discrimination lawsuits. It is illegal to discriminate among numerous protected classes of
people, as listed on the website, or retaliate against those who file a complaint of discrimination.
Become familiar with the many US laws passed since the Civil Rights Act of 1964 first established
protection against discrimination based on race, color, religion, national origin or gender. Visit the US
Equal Employment Opportunity Commission website to learn how to avoid workplace discrimination.
9. Confirm your new hires’ legal status by using E-Verify. Operated by the US Department of Homeland
Security in conjunction with the Social Security Administration, this Internet resource was established
for employers who are committed to maintaining a legal workforce. It determines the employment
eligibility of newly hired employees.
10. Protect the value of your brand. How much is your brand worth?
How much would you spend to protect it? Widely publicized
violations of employment laws or regulations could damage your
brand over and above the costs for legal defense, penalties and
judgments. Today, bad news spreads virally on the Internet. Take
action to prevent your brand from being damaged in the eyes of
consumers, prospective franchise owners and the community.
Franchise business owners can spend an inordinate amount of time achieving compliance and assuring that
employee paperwork is in order to avoid compliance risks and liability. No franchise system operator wants
to be devastated by a multi-million-dollar catastrophic damages bill, such as Coverall suffered. You may
find it is well worth your time to prioritize becoming informed and compliant.
Cheryl Swanson is a consultant with Franchise Workforce and has extensive human resources, benefits, insurance and financial services
experience gained from market-leading companies: CNA Insurance, KeyBank, National City Bank (now PNC) and numerous top underwriters
while with the Forrest T. Jones & Company agency. Complemented by five years of franchisor marketing, distribution and operations
experience, Cheryl’s background uniquely enables her to understand your human resource issues and to provide quality advice in tailoring
outsourced HR solutions. Call 561-600-5554 or visit FranchiseWorkforce.com.
Elevate Franchise Success with
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