Brazil’s highest labor court, the “Tribunal Superior do Trabalho”, recently held that a franchisor was not vicariously liable for labor law infractions committed by a franchisee. In other words, the higher umbrella organization, the franchisor, was not responsible for any illegal acts performed by the subordinate, the franchisee, in relation to labor laws and employment practices.
Franchising is a practice used by businesses whereby they grant a license to a third-party franchisee to use their business model, including specialized technology, intellectual property, marketing materials, and sales methods. Think of fast food chains such as McDonalds and Burger King, for example. They both represent the classic franchise – different owners of the same restaurant in different locations worldwide.
The franchise agreement, which is the document that governs the relationship between the franchisor and the franchisee, does not create an employment relationship. And therefore, the legal responsibility for all employment practices falls onto the direct operator of the business, the franchisee. It is the franchisee that manages the hiring and firing of its own employees.
In Case No. TST-RR-1170-78.2011.5.03.0077, the Brazilian labor court found that franchisees run businesses independently of their franchisor’s direct involvement. A franchisee has the full right to hire and fire employees, manage the day-to-day directives, and create their own employment practices. While the franchisor may implement certain protocols and guidelines of operations, the franchisee maintains full control of the daily operations of the business. Therefore, all liability for possible employment suits lies in the hands of the franchisee, the one who manages all such decisions.
This decision by the Brazilian court system is a small piece of the labor law puzzle. While some decisions such as those revolving around outsourcing are yet to be decided with any certainty, this decision seems to say that at least franchisors in Brazil can expect some level of protection by the courts.
