Subway Franchisor Not Liable for Uninsured Franchisee Employee’s Claims

The Kentucky Supreme Court overturned an appellate court’s ruling providing disability benefits to an employee of an uninsured franchisee.  The court also said the state law doesn’t apply because the franchisee “did not perform a regular or recurrent part of (Doctor’s Associates’) business.”  Subway’s franchising agreement required franchisees to maintain coverage for workers compensation claims yet the restaurant owned by Watash UBC did not have insurance at the time of the employee’s injury in May 2000, reports

Doctor’s Associates Inc., the franchising company for Subway restaurants, can’t be held liable for workers compensation claims stemming from an uninsured franchisee, the Kentucky Supreme Court has ruled.

The Kentucky Uninsured Employers’ Fund had sought payment from Milford, Conn.-based Doctor’s Associates for medical and temporary total disability benefits it paid to the employee of a Subway restaurant in Whitesburg, Ky.

The restaurant, owned by Watash UBC, did not have workers comp insurance at the time of the employee’s May 2000 injury, even though Subway’s franchising agreement required Watash to maintain coverage, according to court records.

An administrative law judge and the Kentucky Workers’ Compensation Board dismissed the Kentucky Uninsured Employers’ Fund claim, saying that franchisors can’t be held liable for uninsured franchisees under Kentucky’s workers comp law. However, a Kentucky appellate court reversed that decision in September.

Subcontractor law doesn’t address franchises

Kentucky law says contractors are considered liable for a subcontractor’s employees if the subcontractor does not have workers comp insurance. However, the legislation does not include specific language about franchises.

In a unanimous decision last week, the Kentucky Supreme Court said the law may apply to some franchisor-franchisee relationships. But it also said that Doctor’s Associates can’t be considered a liable contractor because it “was in the business of franchising, not the business of selling sandwiches.”

The court also said the state law doesn’t apply because the franchisee “did not perform a regular or recurrent part of (Doctor’s Associates’) business.”

“An arrangement must be viewed realistically in light of the business being conducted and the services being rendered rather than the labels or legal fictions the parties employ,” the court ruled in overturning the appellate court.

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