A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY ENACTING THE "FRANCHISE ACT OF 2026" BY ADDING CHAPTER 45 TO TITLE 41 SO AS TO PROVIDE DEFINITIONS AND DEFINE INSTANCES OF DIRECT AND IMMEDIATE CONTROL, AND to PROVIDE EXCEPTIONS, AMONG OTHER THINGS.

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  This act may be cited as the "Franchise Act of 2026."

 

SECTION 2.  Title 41 of the S.C. Code is amended by adding:

 

CHAPTER 45

 

Franchise Businesses

 

    Section 41-45-10.  For purposes of this chapter:

       (1) "Franchise" means any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that:

           (a) the franchisee will obtain the right to operate a business that is identified or associated with the franchisor's trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor's trademark;

           (b) the franchisor will exert or has authority to exert a significant degree of control over the franchisee's method of operation, or provide significant assistance in the franchisee's method of operation; and

           (c) as a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate.

       (2) "Franchisee" means any person who is granted a franchise.

       (3) "Franchisor" means any person who grants a franchise and participates in the franchise relationship. Unless otherwise stated, it includes subfranchisors. For purposes of this definition, a "subfranchisor" means a person who functions as a franchisor by engaging in both presale activities and postsale performance.

       (4) "Direct and immediate control" means having the authority to make or by making day-to-day decisions that have a regular or continuous consequential effect on an essential term and condition of employment of a franchisee's employees.

       (5) "Essential terms and conditions of employment" includes wages, benefits, scheduling, hiring, discharge, discipline, supervision, and direction.

 

    Section 41-45-20.  (A) A franchisor exercises direct and immediate control over wages if it determines the wage rates, salary, or other rate of pay that is paid to a franchisee's individual employees or job classifications.

    (B) A franchisor exercises direct and immediate control over benefits if it determines the fringe benefits to be provided or offered to a franchisee's employees. A franchisor does not exercise direct and immediate control over benefits by permitting a franchisee, under an arm's length contract, to participate in its benefit plans including, but not limited to, health insurance plans, pension plans, and tuition assistance.

    (C) A franchisor exercises direct and immediate control over scheduling if it determines work schedules or the work hours, including overtime, of a franchisee's employees. A franchisor does not exercise direct and immediate control over scheduling by establishing a franchisee's operating hours, or by establishing minimum staffing levels to satisfy the franchise's service standards.

    (D) A franchisor exercises direct and immediate control over hiring if it determines which particular employees will be hired or which employees will not. A franchisor does not exercise direct and immediate control over hiring by encouraging or recommending changes in staffing levels or by setting minimum recruiting and hiring standards, such as those required by law, for consumer or employee safety, or for brand protection.

    (E) A franchisor exercises direct and immediate control over discharge if it decides to terminate the employment of a franchisee's employee. A franchisor does not exercise direct and immediate control over discharge by bringing misconduct or poor performance to the attention of a franchisee that makes the actual discharge decision, by expressing a negative opinion of a franchisee's employee, or by setting minimum standards of performance or conduct, such as those required by law, for consumer or employee safety, or for brand protection.

    (F) A franchisor exercises direct and immediate control over discipline if it decides to suspend or otherwise discipline a franchisee's employee. A franchisor does not exercise direct and immediate control over discipline by bringing misconduct or poor performance to the attention of a franchisee that makes the actual disciplinary decision, by expressing a negative opinion of a franchisee's employee, or by setting minimum standards of performance or conduct, such as those required by law, for consumer or employee safety, or for brand protection.

    (G) A franchisor exercises direct and immediate control over supervision by consistently and directly instructing a franchisee's employees how to perform their work or by issuing employee performance appraisals. A franchisor does not exercise direct and immediate control over supervision if:

       (1) its instructions are limited and routine;

       (2) it:

           (a) sets brand standards for the performance of the work;

           (b) offers training materials including, but not limited to, training demonstrations for a franchisee to use to train employees of a franchisee; or

           (c) establishes minimum training requirements for employees of a franchisee; or

       (3) it provides operational support, guidance, and assistance to the franchisee to promote and protect the brand's goodwill and quality of products and services provided to the consumer.

    (H) A franchisor exercises direct and immediate control over direction by assigning particular employees of a franchisee their individual work schedules, positions, and tasks. A franchisor does not exercise direct and immediate control by offering resources and tools for a franchisee to consider using to direct franchisee's employees' work schedules, positions, and tasks.

 

    Section 41-45-30.  For purposes of workers compensation in Title 42, unemployment benefits, and civil rights regulations, a franchisor is not deemed the employer of a franchisee or a franchisee's employees.

 

    Section 41-45-40.  A franchisor is the employer of a franchisee or a franchisee's employees only if the franchisor directly and immediately controls one or more essential terms and conditions of employment of the franchisee's employees.

 

    Section 41-45-50.  (A) This chapter should be liberally construed to preserve the independence of franchisors and franchisees as separate employers and businesses.

    (B) Nothing in this chapter:

       (1) affects a franchisor's liability under federal law, including the Fair Labor Standards Act or the National Labor Relations Act; or

       (2) limits a franchisor's liability if it exercises direct and immediate control of essential terms and conditions of employment provided in this chapter.

 

SECTION 3.  This act takes effect upon approval by the Governor.

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