Subfranchisees Are Not Employees
A federal judge in California recently decided a lawsuit in favor of master franchisor Jan-Pro Franchising International, Inc., holding that under California law, unit franchisees (subfranchisees) who had franchise relationships with two California regional master franchisees (subfranchisors) were not “employees” of Jan-Pro International.
In Roman v. Jan-Pro International, the unit franchisees brought suit claiming that that they’d been improperly classified as independent contractors, rather than as employees of Jan-Pro. As employees, they sought minimum wages and overtime premiums. But Judge William Alsup of the Northern District of California granted summary judgment to Jan-Pro International. In doing so he found that Jan-Pro International:
· didn’t exercise “direct” or “indirect” control of its unit franchisees’ alleged “wages, hours, or working conditions”;
· didn’t “suffer or permit” the plaintiffs to work simply because it benefitted from their efforts as subfranchisees in the franchise system; and
· didn’t “engage” the plaintiffs for services only because they were unit franchisees within the master franchise structure.
Judge Alsup held that it was irrelevant that there were operational controls within the franchise system to ensure that Jan-Pro International’s subfranchisors upheld brand standards and, in turn, that subfranchisees upheld those same brand standards.
Although the unit franchisees argued that Jan-Pro’s contracts with its master franchisees gave it the absolute right to control the business of any regional master franchisee as well as the unit franchisees by promulgating policies and procedures, Judge Alsup found that Jan-Pro International’s rights to modify the controls or policies that applied to subfranchisors or to terminate subfranchisors who failed to comply didn’t exhibit a “right to control” of the subfranchisees’ day-to-day activities or any “exercise” of day-to-day control. As a result, the judge found that Jan-Pro International had no right to “direct the unit franchisees in their work” simply because as Master Franchisor, it “reserved the right to set workplace standards.”
In addition, the court said that Jan-Pro lacked the authority to stop the unit franchisees from working. Its agreements with the regional master franchisees purported to confer that authority, but the unit franchisees’ agreements with those master owners didn’t extend Jan-Pro’s authority to the unit franchisees bringing suit.
Judge Alsup also rejected the unit franchisees’ alternative theory of “employment” by Jan-Pro International, which argued that the subfranchisors were Jan-Pro International’s “ostensible agents” and therefore were employees of “Jan-Pro” in general… which included Jan-Pro International. The judge found that in no way did the unit franchisees believe the companies they contracted with were called ‘Jan-Pro.’” Thus, the mere fact that the unit franchisees were part of
a franchise system that was branded as “Jan-Pro” didn’t create an ostensible agency relationship to make the them employees of Jan-Pro International.
Quoting an earlier case, Judge Alsup noted that ostensible agency exists where: (1) “the person dealing with the agent does so with reasonable belief in the agent’s authority;” (2) that belief is “generated by some act or neglect of the principal sought to be charged,” and (3) “the relying party is not negligent.”
The judge found that Jan-Pro International did nothing “through affirmative act or neglect” to represent to the unit franchisees that they were employed by Jan-Pro International.
Because of these findings, the unit franchisees’ claims were denied, and their case was dismissed.
As you can see from the Roman case above, franchise relationships can be quite complex. There are numerous issues to understand before you purchase a franchise. Andrew Rogerson can help you with this process.
If you are thinking of buying a franchise and would like more information, this link will allow you to buy and download a copy of my book – Successfully Buy Your Franchise.