Franchisors Wince as Some Courts Re-Label Franchisees as Employees

The franchise community was shaken following a series of court decisions that relabeled franchisees as employees of the franchisor. Jani-King and Coverall North America, two of the largest commercial cleaning franchisors, have been busy defending themselves from labor law claims brought by franchisees seeking minimum wage, overtime pay, and other employment-related benefits. Franchisors operating in California can breathe a sigh of relief after the California District Court in Juarez v. Jani-King granted summary judgment in favor of Jani-King, finding that the franchisor did not exercise sufficient control over the plaintiff franchisees to render them employees.

But recent court decisions may be eroding the Cislaw standard, which has been a balwark for franchisors. For example, earlier this year, in the case of Patterson v. Domino’s Pizza, LLC, a franchisee employee named Domino’s Pizza as a defendant in her lawsuit for sexual harassment. Consistent with Cislaw, the trial court found that the franchisee was an independent contractor, and that the franchisee’s employee was “not an employee or agent of … Domino’s .” But in June 2012, the California Court of Appeals, surprisingly, reversed and remanded the case back to the trial court for a jury trial.

Meanwhile, with some success, some franchisors are looking to state legislatures to clarify that franchisees are not employees.

Until the court and/or legislatures set more defined boundaries for the franchisor and franchisee relationship, more lawsuits by creative plaintiffs’ attorneys are likely.