Franchisors: Good News from Georgia

Franchising a business can lead to rapid growth on a relative shoestring, but it’s not without it’s risks, which can include exposure to employment, tort, and agency liability.  Some of that risk has now been reduced in the state of Georgia, where both houses of its legislature unanimously passed House Bill 548, which prohibits a franchisee from being considered an employee of its franchisor.

The legislation properly classifies the franchisee/franchisor relationship as contractual, and not  based on employment .  The new Georgia law, which is codified as part of Georgia’s workers’ compensation law, states that “[i]ndividuals who are parties to a franchise agreement as set out by the Federal Trade Commission Franchise Disclosure Rule, 16 C.F.R. 436.1 through 436.11, shall not be deemed employees for purposes of this chapter.”

Among other things, this legislation protects franchisors from liability for workers’ compensation claims made by their franchisees, although it is as yet unclear whether it will resolve other issues, such as agency or tort liability.

The new Georgia statute is the first of its kind in the nation, and is certainly good news for those entrepreneurs considering whether to adopt the franchise model for their businesses, and for all franchisors wishing to offer franchises in the State of Georgia.