Immigration Compliance Trends: What Franchisors and Franchisees Need to Know

Immigration Compliance for Franchise Systems: What Franchisors and Franchisees Need to Know

Immigration enforcement is a top priority for the federal government, and franchise systems face it on two fronts. The first is making sure the people working in franchise locations are authorized to work. The second is making sure prospective franchise owners have a lawful way to own and run a US business. Brands that plan for both are better placed to manage legal, operational, and reputational risk.

Form I-9 Compliance: The Franchisee's Obligation

Since the Immigration Reform and Control Act of 1986, every US employer has had to verify the identity and work authorization of each employee on Form I-9. The employer must also keep the completed forms. In a typical franchise system, this duty belongs to the franchisee as the employer, not to the franchisor.

Compliance has two sides. Paperwork errors and omissions can lead to civil penalties. Knowingly employing unauthorized workers can lead to criminal liability. Overcorrecting is also a risk. Asking for more documents than required, rejecting valid documents, or treating workers differently based on citizenship or national origin can violate federal anti-discrimination rules.

Preparing for Government Enforcement

US Immigration and Customs Enforcement (ICE), mainly through Homeland Security Investigations (HSI), enforces these rules in several ways:

• Notices of Inspection: Audits of an employer's Forms I-9

• Subpoenas: Demands for documents and information

• Judicial warrants: Authority to search a worksite or arrest specific individuals

Large worksite enforcement operations (known as raids) usually follow an earlier investigation, such as an I-9 audit, a Department of Labor or OSHA matter, or Social Security no-match notifications.

Every franchise location should have a written response plan. The plan should name a point person and a backup, list legal counsel's contact information, and explain how staff should deal with agents on site. It should also cover business continuity and how to communicate with employees. Staff need training on the plan before any unannounced visit occurs.

Franchisors can help without taking over. Many provide a templated response plan and training materials and leave it to franchisees to carry them out. An enforcement action at one location can become a story about the whole brand. Franchisors should be ready to coordinate public statements, monitor social media, and support franchisee communications.

Guidance Without Control

Franchisees typically hire, fire, and manage their own workforce. A franchisor's risk increases when it controls day-to-day hiring, scheduling, or HR systems, behaves like the employer, or ignores unlawful hiring of which it is aware. Even when the franchisor faces no legal liability, the brand can still suffer.

The safest approach is to give franchisees support without taking control:

• Do: Frame HR guidance as recommended best practice. Share government I-9 resources, sample checklists, training, and referrals to vendors and counsel. Raise compliance expectations at onboarding, especially for first-time employers.

• Don't: Collect or review franchisees' Forms I-9, weigh in on individual hiring decisions, or require a single HR system without first weighing the joint-employer implications.

Building Compliance into the Franchise Agreement

A well-drafted franchise agreement should include:

• An express covenant to comply with all employment and immigration laws, either in its own provision or in a dedicated addendum rather than a general "compliance with laws" clause

• A clear statement that the franchisee alone hires, verifies the work eligibility of, manages, and terminates its employees

• Indemnification for claims against the franchisor that arise from the franchisee's hiring practices

• Prompt notice to the franchisor of government inspections, enforcement actions, or significant findings

Franchisors should also set an example. They should audit their own employees' I-9s at headquarters and company-owned locations first, keep auditing on a regular schedule with counsel's help, and fix any problems they find.

Visa Pathways for Foreign Franchisees

Brand recognition, proven systems, and training make franchises attractive to foreign investors. Those same features can also strengthen an immigration filing for a franchise owner. Buying a franchise does not, on its own, provide the buyer with US work authorization or permanent residence. The investor and the investment must meet every requirement of a specific visa category.

Categories such as H-1B, TN, and E-3 can work for professional employees of a franchise, where the franchise petitions for those workers to US Citizenship and Immigration Services. These visa categories are generally a poor fit for franchise owners.

Key Takeaways

• Franchisors: Put clear compliance obligations in the franchise agreement. Support franchisees without controlling their employment decisions. Prepare the system for enforcement actions and protect the brand.

• Foreign franchisees: Work with immigration counsel early to choose the right visa strategy. Document ownership, funding sources, and the business plan thoroughly. Plan for realistic processing timelines and run a compliant business from the first day.

With early planning and experienced immigration counsel, immigration can become a driver of growth instead of a source of risk.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.