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News: Does AB5 put franchises at risk?

On Behalf of | Feb 26, 2021 | employment law

By now, employers and business owners are very familiar with California’s Assembly Bill 5 and the new – and highly controversial – rules for classifying whether workers are employees or independent contractors. Regardless of what an employer’s feelings are about these new guidelines, they are a reality for California employers.

Challenges and disputes over this new law continue to arise. September 2020 brought a new bill that added even more exemptions to this rule in response to these challenges. However, many businesses face yet another concern regarding this law.


Several franchise organizations have filed a lawsuit challenging AB5’s effects. These organizations do not necessarily oppose AB5’s guidelines or the ABC test in general, but they are concerned that the law:

  • Conflicts directly with federal franchise laws and organizational structure
  • Affects the franchisee’s place in the business world
  • Impacts the business relationship between franchisees and franchisors

The organization of franchises is unique in the business world, and owners are concerned that the language of AB5 would jeopardize the franchisee’s place – essentially defining them as the franchisor’s employee.


Franchisees are small business owners in their own right. After all, a franchise is generally considered a joint venture.

These business owners simply have the license to operate under a larger company’s trademark and with their business model. While they do have to protect the brand and adhere to specific rules of the larger company, they are independent. However, that does not classify them as an employee or independent contractor.

State lawmakers have been quite responsive to the concerns over AB5. Additionally, federal law already clearly defines franchise regulations and rules. Therefore, business owners involved with franchises should not worry, but they should monitor this lawsuit and take measures to protect their business.