Massachusetts Bill Would Clarify Franchisee Status Under Labor Laws

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A newly introduced Massachusetts bill would amend the Massachusetts labor, unemployment insurance, and workers’ compensation statutes by stating that an individual who owns a franchisee or is party to a franchise agreement would not be considered an employee of the franchisor. House Bill No. 3513 was introduced and referred to committees June 9, 2011.

The introduction of the legislation comes in the wake of Massachusetts rulings involving a franchisor of janitorial cleaning business (Coverall) and allegations that its business model was subject to the coverage of three Massachusetts labor statutes.

In a 2006 decision, Coverall North America, Inc. v. Commissioner(CCH Business Franchise Guide ¶13,491), the Massachusetts Supreme Court held that the purchaser of a janitorial cleaning business franchise, whose relationship with the franchisor differed in some key respects from the typical franchise relationship, was not an independent contractor or even a franchisee, but was an "employee" under the meaning of the Massachusetts unemployment insurance law. Thus, the franchisor was required to pay contributions for the purchaser's reported earnings pursuant to the unemployment statute.

More than three years later, in Awuah v. Coverall North America, Inc. (CCH Business Franchise Guide 14,349), a federal district court held that the franchisor had misclassified its Massachusetts franchisees as independent contractors under the meaning of the Massachusetts Independent Contractor Statute. Instead, the franchisees were employees of the franchisor under the statute, according to the court.

Finally, a federal district ruled in the same case that the franchisor violated the Massachusetts workers’ compensation law and Wage Act by improperly requiring the franchisee-employee to pay for insurance and by failing to pay the franchisee-employee within a week of the weekly or bi-weekly pay period during which the wages were earned (Awuah v. Coverall North America, Inc., CCH Business Franchise Guide ¶14,473).

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