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New Franchise Law – State of Georgia

On May 1, 2012, Governor Nathan Deal signed House Bill 548 after it unanimously passed both the Georgia House of Representatives and Senate.  That bill, which took effect on July 1, 2012, provides that a franchisee is not an employee of its franchisor, by virtue of the franchise relationship, within the meaning of Georgia’s workers’ compensation laws.

The bill is largely the result of lobbying efforts by the International Franchise Association (“IFA”).   According to IFA Senior Vice President of Government Relations and Public Policy, Judith Thorman, “[a]s 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 actual effect of the bill on franchising in Georgia, however, is unclear.  No court applying Georgia law has actually held that franchisees are employees for the purposes of workers’ compensation.  Furthermore, Georgia courts have consistently held franchise relationships are not one of agency—i.e., a franchisee does not act on behalf of and subject to its franchisor’s control such that franchisor can be held vicariously liable for the franchisee’s conduct.  See, e.g.,  McGuire v. Radisson Hotels Int’l, 209 Ga. App. 740, 742, 435 S.E.2d 51 (1993); Brooks v. Collis Foods, Inc., 365 F. Supp.2d 1342, 1349 (N.D. Ga. 2005) (“Under Georgia law, the mere fact that a business operates under a franchise contract on a royalty basis does not create an agency or partnership relationship”).

Other states, however, have concluded that franchisees may be employees of their franchisors, at least under certain circumstances.  Most notably, in Awuah v. Coverall N. Am., Inc., 707 F. Supp.2d 80 (D. Mass 2010) (“Awuah I”), the United States District Court for the District of Massachusetts held that, as a matter of law, a franchisor had engaged in an unfair or deceptive trade practice by misclassifying its franchisees as independent contractors rather than employees.  The result of this ruling was that the franchisor was required to provide and pay for workers’ compensation insurance for its franchisees. See Awuah v. Coverall N. Am., Inc., 740 F. Supp.2d 240 (D. Mass. 2010) (“Awuah II”).

Whether you’re a franchisor or franchisee, Ichter Davis is here to help you navigate the changing legal landscape with respect to franchise law.  If you have any questions about this or related matters with respect to your business, please call Cary Ichter or William Daniel Davis at (404) 869-7600

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