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State regulators across the country are out to blur the distinction between franchisors and employers, and if they succeed, they could crimp the growth of one of the franchise industry's hottest segments – franchise providers of janitorial, security guard, industrial gardening, delivery and other services to commercial clients.

Regulators say that the providers of such services, who sign on as “unit franchisees” under master franchisees, are really employees of the master franchisees, and they want the master franchisees to withhold payroll taxes, obey state labor laws regulating wages and overtime, provide workers' comp insurance, and take on all the other legal responsibilities of employers.

Given the often unique franchising relationships among operators in the industries under scrutiny, the regulators may have a point, making it necessary for the companies operating in these fields to step carefully. How can companies protect themselves?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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