Montgomery & Bucks County Workers' Compensation Law Blog

Wednesday, September 21, 2016

PA Supreme Court to Hear Franchisor Workers Compensation Case

Is a franchisor liable as a statutory employer for injuries sustained by a franchisee employee?

Until recently, the relationship between a franchisor and a franchisee meant that the franchisor was not a statutory employer and thus not liable for injuries sustained by a franchisee employee. Now the Pennsylvania Supreme Court is set to weigh in on the issue.

The case involves a franchisee employee who slipped and injured both his knees in a Philadelphia Saladworks restaurant and applied for Workers Compensation benefits from the franchisee. Since the franchisee did not have workers' compensation insurance, the injured worker also filed a claim against the Uninsured Employers Guaranty Fund (UEGF).

The fund then moved to join the franchisor as a statutory employer of the injured worker, but a Workers Compensation judge ruled that Saladworks, as a franchisor, was not the employer of the claimant. The Workers Compensation Appeal Board reversed the decision, likening a franchise relationship to a construction contract. In its ruling, the Board also looked to the franchise agreement, which required the franchisee to obtain workers compensation insurance. Its failure to do so made the franchisor responsible for payment "as the first entity in a contractor chain." In short, the Board found that Saladworks was the statutory employer, and as such was liable for on the job injuries sustained by employees.

The Commonwealth Court disagreed with the board's ruling stating that Saladworks not liable as a statutory employer because its main business was selling franchises, it was not in the restaurant business or in the business of selling salads. The case has been appealed to the Pennsylvania Supreme Court which will hear oral arguments in the spring of 2017.

It remains to be seen whether the high court will view the franchisor relationship differently than a contractor-subcontractor relationship and maintain the legal distinction between a franchisor and franchisee. In these arrangements, the franchisor typically does not have control over employees which is the reason it is not viewed as a statutory employer.

This case has far reaching implications, given the proliferation of franchise operation not only in Pennsylvania but across the country. Regardless of the outcome, the fact remains that workers in Pennsylvania have the right to a safe workplace, and are entitled to workers' compensation benefits in the event of an injury. 

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