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

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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.

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