Pennsylvania Supreme Court to Review Franchisor as Possible Statutory Employer

October 17, 2016
By Scott Fellmeth
Posted in Employer-Employee Relations

The Pennsylvania Supreme Court has recently agreed to hear the appeal of Saladworks, LLC v. W.C.A.B. (Gaudioso), 124 A.3d 790, 791 (Pa. Commw. 2015), reargument denied (Nov. 23, 2015), appeal granted, 135 A.3d 1016 (Pa. 2016). In doing so, the Pennsylvania Supreme Court will decide whether a franchisor may be subject to liability as a statutory employer under Section 302(a) of the Workers’ Compensation Act.

By way of background, from time to time in a Pennsylvania workers’ compensation case, the entity who is actually the employer for workers’ compensation purposes is not clear. When such a situation arises, it is prudent to see if a “statutory employer” exists. A statutory employer is a party other than the direct employer is responsible for the payment of workers’ compensation benefits. Historically, the franchisor-franchisee relationship has been held to be different from the contractor-subcontractor relationship.

Section 302(a) of the Act was enacted to prevent contractors from claiming that they were not liable for employees who were injured on jobsites while doing work for a subcontractor. In such situations, the general contractor has hired the subcontractor because it is more convenient to hire a specialist to do certain work rather than have the general contractor do all the work itself.

Under the Act, employers are immune from tort liability to employees injured within the course and scope of their employment. The statutory employer doctrine provides this exact same immunity for certain contractors who are not the actual or direct employer of the injured worker. The statutory employer defense is available to contractors who can establish:

  1.   An employer who is under contract with an owner or one in the position of an owner;
  2.   Premises occupied by or under the control of such employer;
  3.   A subcontract made by such employer;
  4.   Part of the employer’s regular business entrusted to such subcontractor; and
  5.   An employee of such subcontractor.

A contractor meeting all of the five elements of the statutory employer doctrine is subject to potential liability to pay workers’ compensation benefits to the injured employee of a subcontractor.

A franchise relationship, on the other hand, is more of a trademark license than a work subcontract. As pointed out by the Commonwealth Court in Saladworks, franchisors are in the business of selling franchises. They are not in the business of selling salads or whatever else their franchisees are in the business of doing.

In Saladworks, an employee who worked at a Saladworks restaurant that was owned and operated by G21, LLC, twisted both knees when he slipped on water and was rendered disabled. Seeking workers’ compensation benefits, the employee filed a claim against both G21, LLC. Saladworks (the franchisor) was eventually joined in the lawsuit under the theory that Saladworks  was the statutory employer and, thus, liable to pay the employee’s benefits.

A workers’ compensation judge determined that Saladworks was not the statutory employer as it failed to meet the definition under the Act. This decision was reversed by the Workers’ Compensation Appeal Board, which felt that the workers’ compensation judge erred in looking at the degree of control held by a franchisor, rather than looking at the situation, and determined that Saladworks was a statutory employer liable to pay workers’ compensation benefits for injuries to its franchisees’ employees.

The Commonwealth Court reversed finding that Saladworks’ main business was the sale of franchises to franchisees. It was not in the restaurant business or the business of selling salads, and, therefore, was not a statutory employer and was not liable to pay workers’ compensation benefits.

The case has been appealed to the Pennsylvania Supreme Court and oral arguments will be heard in the Spring.

If the Pennsylvania Supreme Court upholds the Board’s decision in Saladworks, the decision could change the existing franchise business model in Pennsylvania. SMGG offers comprehensive employment litigation services for companies.

The author, Scott A. Fellmeth, is a member of the litigation practice group.  If you have any questions, please contact David A Strassburger at dstrassburger@smgglaw.com, Jean E. Novak at jnovak@smgglaw.com (in the Employer-Employee Relations Practice), or Scott A. Fellmeth at sfellmeth@smgglaw.com.