March 28, 2023

Volume XIII, Number 87


March 27, 2023

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Franchise Issues Arising Out of the Upcoming Employer Mandates of COVID-19 Vaccinations

On September 9, 2021, President Biden announced through a COVID-19 Action Plan that his administration is requiring many employers to mandate their employees be vaccinated against COVID-19. The announcement covered federal employees, employees of federal contractors, employees of health care companies that receive Medicare or Medicaid, employees of certain education entities and millions of private-sector employees employed by companies with over 100 employees. The details are yet to come, including the penalties, exemptions and who may be eligible to opt for weekly testing instead of vaccination. While the President also issued two executive orders setting forth some of the parameters regarding the requirements for federal employees and employees of federal contractors, the details and requirements for employers of 100 or more employees were not covered in the executive orders.

For employers with over 100 employees, President Biden charged the Occupational Safety and Health Administration (OSHA) with the responsibility of issuing an emergency temporary standard (ETS) to implement the directive. What OSHA will include is yet to be seen, but based on existing authority and some press accounts, mandatory vaccination or testing once a week, plus paid time off to get vaccinated and to recover from any side effects, will be included, together with penalties of $14,000 per violation.  

Whether OSHA has the authority to issue an ETS under current circumstances will inevitably be challenged in court. Generally, to overcome these anticipated challenges, OSHA would be required to prove that workers are exposed to a grave danger and the rule is necessary and appropriately limited to address that danger. And any emergency standard must also be feasible for employers to enforce.

While waiting to see the new ETS, private employers with more than 100 employees have numerous questions, including when will OSHA issue the ETS, whether paid time-off will be required for testing for those who are allowed to opt-out of vaccination, who will pay for the costs of compliance (including the costs of testing and possibly vaccination), what documentation, recordkeeping, examination/inquiry restrictions and other processes will be required for the mandates, what, if any exemptions will be included, the penalties for non-compliance or insufficient enforcement and what end-date these mandates will have.

Companies operating under a franchise model—both franchisors and franchisees—have multiple significant additional questions as well.    

Perhaps of greatest concern to the franchise community are whether a franchisor and its franchisees will be deemed to constitute a single entity for purposes of calculating the 100 employee threshold and the potential for joint liability. If OSHA finds a joint employment relationship between a franchisor and its franchisees, then a franchisor with fewer than 100 employees and each individual franchisee could be subject to the vaccine mandate based on the aggregation of the franchisor and franchisees’ employees. And, even if the ETS does not calculate the number of employees across a brand, how it will treat unit franchisees with multiple locations (perhaps depending on how corporately organized) is still unknown.

In addition, OSHA could also use joint employment as a means to impose liability on franchisors for franchisees’ violations of the mandate. OSHA staff have previously expressed a broad standard that creates the potential for a franchisor-franchisee joint employer relationship where the franchisor has the ability to exercise direct or indirect control over the franchisee’s employees’ working conditions, even if that control is in fact unexercised. OSHA’s internal guidance states that the agency will examine factors including the franchisor’s imposition of workplace safety standards for franchisees, inspection of franchisee facilities for health and safety issues, implementation of safety trainings and collection of safety information.

Regardless of potential liability, franchisors and franchisees with over 100 employees need to be evaluating these issues and preparing to develop standards and protocols.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XI, Number 257

About this Author

Leonard (Len) MacPhee Shareholder  Practice Co-Chair Global Franchise and Supply Network Commercial Litigation International

As the Co-Chair of Polsinelli’s Global Franchise and Supply Network practice, Len focuses on analyzing and advising clients on significant supply network matters, including on a pre-litigation basis. He frequently represents national and global clients in structuring and negotiating business strategies for the rollout of products and diverse distribution methods on global and national supply network franchise and distribution matters, as well as transitions and wind-down of franchise and distribution systems.  

Representing franchisors, suppliers, manufacturers and other businesses...

Joyce Mazero, Polsinelli Law Firm, Dallas and Denver, Finance and Litigation Attorney

As Co-Chair of the Global Franchise and Supply Network practice, Joyce Mazero represents national and global product and service-based companies leading them through major initiatives including structuring franchise and distribution networks, purchasing cooperatives and buying groups; negotiating strategic alliances, joint ventures, domestic and international licensing, franchising, manufacturing, retail and logistics deals; buying and selling franchise chains, food service providers and manufacturing plants, and litigating franchise, intellectual property and...

Jan S. Gilbert Franchising Attorney Polsinelli Law Firm

Clients rely on Jan Gilbert for his strategic counsel in complex aspects of domestic and international franchising. With more than 30 years of experience, Jan advises start-ups and developed franchisors and franchisees on a wide variety of franchise relationship matters, including structuring franchise programs, federal and state regulatory issues, mergers and acquisitions, compliance issues and drafting development and area representative agreements.

Jan leverages his previous experience to negotiate both domestic and international agreements...