Monday, August 22, 2011

Franchisor Was Not “Employer” of Unit Franchisee of Its Master Franchisee

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

A franchisor of regional janitorial business master franchisees was not the "employer" of a unit franchisee of one of the master franchisees under the meaning of the Massachusetts Independent Contractor Statute (MICS), a Georgia appellate court has decided.

Reversed was a ruling by a Georgia trial court, granting summary judgment to the franchisee on his claim that he was the employee of the franchisor.

Independent Contractor Statute

Under the statute (M.G. L. c 149, s.148B), an individual performing a service was considered an employee unless:

"(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(2) the service is performed outside the usual course of the business of the employer; and

(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed."
Control by Franchisor

The franchisee was sufficiently free from control by the parent franchisor as to satisfy the first prong of the MICS analysis, the court held.

The franchisee performed work pursuant to a contract with the regional master franchisee, which was a separate entity from the franchisor, created by persons unaffiliated with the franchisor. The master franchisee made its own hiring and firing decisions without control by the franchisor.

Although the franchisor had the ability to enforce that contract to protect the franchise brand, its status as a third-party did not make it a party to that agreement in the sense of having control over the franchisee’s work.

Service Outside Usual Course of Business

The second prong was satisfied because the service provided by the franchisee was not in the same scope of business conducted by the parent franchisor.

The parent franchisor’s usual business was establishing a trademark and cleaning system that was then licensed to regional franchisors. The franchisee argued that language on the parent franchisor’s website demanded a finding that the parent’s usual business was providing cleaning services. However, such labels did not overcome the facts that the parent did not market cleaning services and did not invoice or collect payment for cleaning services, the court reasoned.

Independent Businesses

The third prong was satisfied because the nature of the three-layer franchise arrangement necessarily meant that the franchisor and the unit franchisee were engaged in operating independent businesses, the court determined. The franchisor did not limit or control the scope of the franchisee’s services or the continuation of his business.

The decision, Jan-Pro Franchising Int’l, Inc. v. Depianti, appears at CCH Business Franchise Guide ¶14,643.

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