The Franchise Community and AB-5
Event Horizon of Change
OCT 02, 2019 by JESSICA MARTIN
Historically, California has been a catalyst for movement throughout the nation regarding all areas: social, cultural, and economic. Labor Law has been a key focus for the pioneering state for many years, and its ground-breaking forward thinking continues to jolt employers.
Assembly Bill 5 (AB-5) was passed on September 11 and signed into law on September 18, 2019, one year after the California Supreme Court implemented the ABC Test. This three-part test places the burden on employers to prove that workers employed as independent contractors are classified correctly.
Signing into law AB-5, the franchise industry and a variety of small businesses are now on the event horizon of significant change that could make or break their business model. The ABC Test is clearly outlined for most organizations, but the franchising model has not been tested and the lack of testing offers up an alarming amount of obscurity.
Relationships between the franchisor and franchisee could be subject to the joint employment rule at some juncture. Joint employment is considered co-employment and holds businesses responsible for a variety of employee-based benefits that don’t apply when they are classified as independent contractors.
Currently, the International Franchise Association is proactively combining and building efforts to oppose other states that have indicated their plans to follow suit.