Legal Challenges of Chronic Employee Deficits in QSR Franchises

Launching a new Quick-Service Restaurant (QSR) franchise can be extremely challenging, making the professional advice of a franchise lawyer invaluable.

Contact Neufeld Legal PC for QSR franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Chronic employee deficits in Quick Service Restaurant (QSR) franchises present several significant legal challenges for both the franchisee and, increasingly, the franchisor. These issues often stem from understaffing leading to violations of employment laws, safety regulations, and operational agreements; such that engaging experienced legal counsel, on a ongoing basis, to advise on these employment-related matters is imperative for QSR franchisees.

A. Wage and Hour Violations

The most common and costly legal risk is non-compliance with wage and hour laws, often intensified by inadequate staffing.

• "Off-the-Clock" Work: Employees in understaffed environments may be pressured or required to perform essential tasks, like prep work or closing duties, before clocking in or after clocking out, leading to unpaid time. This constitutes wage theft and violates applicable employment standards legislation.

• Overtime Non-compliance: Employees who regularly work over 44 hours per week (with provinces have particular requirements) due to shortages may not be correctly paid the required overtime rate (with its computation being more complex than most employers realize in various provincial jurisdictions). Improper classification of employees can also be an issue.

• Meal and Rest Break Violations: Understaffing makes it difficult to cover shifts, often resulting in employees skipping or having shortened, uninterrupted meal and rest breaks, which is a violation in jurisdictions where these breaks are legally mandated.

• Predictive Scheduling/ Fair Workplace: In some provinces, legislation requires employers to provide advance notice of shift changes, rest requirements between shifts ("clopening" shifts), and minimum shift requirements (i.e., 3 hour paid shift requirement). Chronic deficits make adherence to these complex scheduling laws extremely difficult and costly.

B. Health, Safety, and Food Safety Liabilities

Insufficient staffing can lead to lapses in crucial operational and safety protocols, increasing liability.

• Foodborne Illness Risks: Overworked or rushed employees may cut corners on critical food safety procedures like proper cooling, temperature monitoring, sanitation, and cross-contamination prevention, increasing the risk of foodborne illness outbreaks. This can result in costly civil lawsuits, regulatory fines, and potential criminal penalties.

• Workplace Safety Hazards: Understaffing may lead to employees operating equipment without proper supervision or training, rushing tasks, or neglecting regular maintenance and cleaning, increasing the risk of on-the-job injuries and related workers' compensation claims or OSHA violations.

C. Joint Employer Liability

The core franchise model is built on the franchisee being the sole employer. Chronic labor issues threaten this distinction, potentially exposing the franchisor to liability.

• Franchisor Control: When a franchisor exerts significant operational control over a franchisee's day-to-day labor practices (e.g., setting staffing levels, imposing scheduling software, dictating job descriptions), courts and regulatory bodies may deem the franchisor a "joint employer."

• Increased Liability for Franchisors: A joint employer finding makes the franchisor legally responsible for the franchisee's employment law violations (e.g., wage theft, discrimination, unsafe working conditions), drastically increasing the franchisor's risk, legal costs, and potential for system-wide class-action lawsuits.

D. Reputational and Contractual Issues

While not direct legal violations, these challenges can lead to lawsuits and operational harm.

• Breach of Franchise Agreement: Franchise agreements often require franchisees to maintain high operational standards, including adequate staffing to ensure product quality and customer service. Chronic deficits can be cited as a breach of contract by the franchisor, potentially leading to termination of the franchise agreement.

• Negligent Hiring/Retention: Constant, crisis-driven hiring due to high turnover may result in inadequate screening or training, which could lead to claims of negligent hiring or negligent retention if an employee harms a customer or co-worker.

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of the franchise business (with a particular emphasis on the restaurant sector, given my prior background in the hospitality industry), together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.