Legal Challenges of High Employee Turnover 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

High employee turnover rates in Quick-Service Restaurant (QSR) franchises significantly increase the risk and complexity of legal challenges, primarily centered on labor and employment law compliance. These high turnover rates can exacerbate existing compliance issues, leading to an increased frequency of disputes, litigation, government investigations, and costly settlements; such that employment law focused legal compliance, on an ongoing basis, is imperative for QSR franchisees.

A. Wage and Hour Violations

The constant churn of employees, combined with the pressure on franchisees to minimize labour costs, makes QSRs highly vulnerable to costly litigation related to paying employees incorrectly.

• Failure to Pay Minimum Wage/Overtime: New, rapidly trained managers may be unaware of complex provinical laws regarding the calculation of overtime, holiday pay, vacation pay, as well as scenarios where employees work at multiple locations.

• "Off-the-Clock" Work: High turnover often creates a constant state of understaffing, which can pressure remaining employees to work before or after shifts without compensation, or during unpaid breaks, leading to wage theft claims.

• Improper Record Keeping: The continuous cycle of hiring and separation makes it difficult to maintain accurate time and payroll records, which are essential for defending against wage claims. Poor documentation is a major liability, as is the improper establishment of the employer's payroll system, using commercial payroll software.

• Meal and Rest Break Violations: In jurisdictions with strict break laws, a constantly revolving door of staff and managers makes consistent enforcement of required breaks challenging, leading to class-action lawsuits.

B. Joint Employer Liability

The franchisor-franchisee relationship is constantly scrutinized under labor law. A high volume of employment-related complaints or violations by many franchisees can trigger legal action aimed at establishing joint employer status between the corporate franchisor and the franchisee. If successful, a finding of joint employer status can make the corporate franchisor financially liable for the employment law violations (like wage theft or discrimination) committed by its individual franchisees.

C. Discrimination, Harassment, and Retaliation Claims

A high-turnover environment can lead to inconsistent application of policies and a breakdown of training on critical issues, increasing the likelihood of claims:

• Lack of Proper Training: Managers, who themselves have high turnover rates, may not receive or provide adequate training on preventing sexual harassment, discrimination, or how to handle employee complaints lawfully.

• Wrongful Termination/Retaliation: Employees who complain about poor working conditions or illegal practices (like wage theft) before leaving may claim they were forced to quit (constructive dismissal) or were otherwise retaliated against, especially if the separation process is handled poorly due to inexperience.

• Inconsistent Discipline: A rotating managerial staff can fail to apply disciplinary rules consistently, creating evidence that supports claims of discrimination based on a protected class.

D. Training and Documentation Failures

The need to constantly recruit and train new employees and managers can result in cut corners, which creates liability in itself:

• Inadequate Safety Training: High turnover staff may not receive proper training on food safety, equipment operation, or workplace hazards, potentially leading to injuries, fines from occupational safety agencies, and personal injury lawsuits.

• Employee Misclassification: Managers struggling with labor costs may improperly classify an employee as an independent contractor or a salaried-exempt employee to avoid paying overtime, a costly violation that is often identified when an employee leaves and pursues legal action.

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.