Franchisor not exempt from providing benefits to franchisee's employee

Determining whether a franchise relationship falls under the Kentucky workers' compensation law must be decided on a case-by-case basis by examining the relationship between the alleged contractor and subcontractor.

Case name: Uninsured Employers' Fund v. Brown, et al., No. 2010-CA-000283-WC (Ky. Ct. App. 09/03/10, unpublished).

Ruling: In an unpublished decision, the Kentucky Court of Appeals held that a franchise relationship is not exempt from the workers' compensation law. In certain circumstances, the franchise relationship can be a contractor-subcontractor relationship.

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What it means: Determining whether a franchise relationship falls under the Kentucky workers' compensation law must be decided on a case-by-case basis by examining the relationship between the alleged contractor and subcontractor. It also requires a consideration of whether the alleged subcontractor performed work that is a regular or recurrent part of the contractor's work.

Summary: A worker sustained injuries while working at a sandwich shop. The shop owner carried no workers' compensation insurance, so the worker's medical expenses, temporary total disability benefits, and a settlement were paid by the uninsured employers' fund. The fund sought indemnity from the franchisor of the sandwich shop chain. An administrative law judge found that all relationships involving commercial franchisors and franchisees fall outside the scope of the workers' compensation law and since the shop's owner was paying the franchisor to operate the shop, it could not be considered the franchisor's subcontractor. The Kentucky Court of Appeals reversed, holding that a franchise relationship could fall under the law. The court remanded for the ALJ to take additional evidence regarding the nature of the franchisor's business and whether the owner's work was a regular or recurrent part of its business and also to take additional findings of whether the owner was a subcontractor.

The court noted that Kentucky law does not indicate whether the franchise relationship could also constitute a contractor-subcontractor relationship. Further, no Kentucky case law resolved the issue of whether a franchisor is exempt from providing workers' compensation benefits for the employees of its franchisees.

The court stated that if selling sandwiches was a regular and recurrent part of the franchisor's business, then the owner was performing work that the franchisor otherwise would have been performing itself and the owner would be considered a subcontractor.

Read more at the WorkersComp Forum homepage.

December 6, 2010

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