“Industrial insurance” is the technical term used in the State of Washington to refer to worker’s compensation. Workers compensation laws are put in place to provide a fund to compensate workers injured while on the job. In exchange for employers’ contributions to the fund, they gain immunity to personal injury lawsuits.

Workers compensation in Washington applies broadly to “workers,” which are statutorily defined as including both employees, and in many cases independent contractors. Notwithstanding the broad definition, however, during the past forty years that Washington has regulated franchising, workers compensation has been an issue that has solely been a concern for franchisees. After all, it is the franchisees that actually run the franchised businesses. Franchisors don’t hire, fire, or supervise franchisee’s employees.

But that long history hasn’t stopped the Washington Department of Labor and Industries (DLI) from taking the position that franchisors are responsible for franchisees’ workers in a case that is currently pending before the Washington State Court of Appeals: Washington State Department of Labor & Industries v. Lyons Enterprises, Inc., Cause No. 45033-0-II. The Lyons case tests whether a janitorial services franchisor is responsible for paying industrial insurance premiums for franchisees and their employees.

If you haven’t yet fallen asleep reading this (after all, we are talking about industrial insurance), it is probably because you recognize that franchisor responsibility for a franchisee’s industrial insurance is potentially a big deal. A big enough deal that the case has attracted the attention of the International Franchise Association, which filed an amicus brief on behalf of Lyons (yes, we represented the IFA, so blame us if you don’t like the brief).

The stakes are high, because if the Department prevails, it has indicated that it intends to apply the decision broadly to all service franchisors doing business in the State. The broad expansion envisioned by the Department would not only require franchisors to begin paying premiums for their franchisees and their franchisees’ employees, it would also impose substantial regulatory record keeping requirements that are likely not addressed in most franchise agreements. The court of appeals heard oral arguments on the case on June 30, 2014, and a decision is currently pending.