Franchising is based on the principle that every franchisee owns and operates their own business and is independently responsible for their own decisions, including the opportunity to retain business-related profits. The franchisor provides support for the brand through standards regarding quality and uniformity. In short, the national brand, or franchisor, sets standards and ensures consistency of consumer experience, while the individual owner operates the business location and retains its profit.
There is a conflict of laws issue between trademark law and employment law. Specifically, the Lanham Act, 15 U.S.C. § 1051 et seq., requires trademark holders to police the use of their intellectual property licensed to third parties so that the brand is consistent and uniform to consumers. Without controls over brand standards, the brand loses its quality and value. Over the last several years, however, the exercise of brand controls has been used as evidence of employment controls in litigation at the federal, state, and local level.
For example, both a franchised hotel property owned by a local businessperson and a national brand hotel company may be sued by a plaintiff claiming they are due their rightful overtime payments as per the Fair Labor Standards Act. The local hotel owner will be sued as the direct employer and the national brand will be sued as a joint employer, with the plaintiff claiming the issuance of uniform brand standards as evidence of said joint employment. However, the national brand was not involved in the hiring or management of the employee and argues before the court that the joint employment claim should be dismissed based on the Lanham Act requirement that brand controls be established to maintain the uniformity of the brand. The judge allows the case to proceed and ignores the conflict of laws issue.
The Trademark Licensing Protection Act (TLPA) resolves the conflict of laws issue by affirming that brand controls issued to preserve or enhance the brand may not be used as evidence of employment controls in litigation.
Congress is currently considering the Trademark Licensing Protection Act (TLPA). To get involved, become a part of the Franchise Action Network (FAN)!