IFA Amicus Warns of Franchisees Classified as Employees | BlueMauMau

WASHINGTON – Last week, the International Franchise Association filed its amicus brief to the Massachusetts Supreme Judicial Court in the ongoing Awuah v Coverall North America, Inc. case “to clarify the unique attributes of franchise businesses and viability of the industry as a proven job creator in Massachusetts.”

"On behalf of the franchise industry, we urge the court to fully take into account the unique attributes of franchising and the federal regulatory oversight of the franchise business model,” IFA President & CEO Steve Caldeira said.

The brief, submitted by franchise attorneys Eric Karp and Doris Fournier of Witmer, Karp, Warner & Ryan LLP in Boston, was filed jointly on behalf of the IFA, Friendly’s Restaurants Franchise and Fantastic Sams Franchise Corporation.

Upfront, the amicus states that IFA has two interests in the case. “First, were the District Court’s classification ruling to become the prevailing rule, it would make it difficult, if not impossible, for franchising to remain a business model in Massachusetts.” It states that IFA has an interest in seeing that question addressed only in the context of a full record and only when it has been squarely presented.

The association’s second interest relates to the implementation and collection of franchise fees, management fees and royalties. “A ruling that prohibits franchisors from charging and collecting such fees would threaten the viability of franchising as a business model in Massachusetts no less than the District Court’s classification ruling,” the brief states. It adds that if this court adopts the franchisee appellants and the attorney general’s positions on franchise-related fees, independent owners will no longer have access to the opportunities that franchise systems afford.

The attorneys state that franchisors likely will determine that the costs of doing business in Massachusetts are too high in comparison to other states. It will thereby leave many entrepreneurs without the chance to start their own business and many residents without employment opportunities or access to important products and services.

As background, in the spring of 2010, U.S. District Court Judge William G. Young held that based on Massachusetts' employment statutes, the plaintiffs-franchisees of Coverall North America-were actually employees of the franchisor that had been misclassified as independent contractors.  Under the statute, individuals providing a service are considered employees if they meet one of three prongs of the "ABC Test" of employee misclassification.  The judge based his decision on prong B ("the service provided by the worker is outside the employer's usual course of business"), asserting there is no distinction between the defendant's business and that of its franchisees.  “In what amounts to a threat to the entire franchise business model, the ruling could bring into question the legitimacy of every business that relies on contractually related firms as sources of revenue,” IFA said.

In addition to filing an amicus brief in Awuah v. Coverall North America, IFA said it is also working to protect the entire franchising community in Massachusetts by filing legislation to permanently address the underlying misclassification issue.  “Recognizing that the franchising business model is unique and does not neatly fit within existing labor statutes, the legislation would exempt from the "ABC Test" any individuals who are party to a franchising agreement as regulated by the Federal Trade Commission under 16 CFR 436 through 436.11.”

Shannon Liss-Riordan, representing Awuah said the Massachusetts Supreme Judicial Court, the court the case is now pending at, has previously determined that a Coverall franchisee was not in fact a franchisee, that she was an employee. “At the oral argument it came out again that the Supreme Judicial Court had already determined that a Coverall worker was an employee not a franchisee, so we disagree with the assertion that this case will somehow end franchising in Massachusetts.” 

Liss-Riordan said the Coverall workers who clean office buildings are employees under Massachusetts law and the “franchise” label does not  protect Coverall from the wage law. She added, “There are ways for franchisors to continue to operate in Massachusetts and Coverall has simply not complied with the law.” 

Liss-Riordan said they are seeking to have the franchise fees and all other various fees and expenses paid back because they are saying it is illegal for an employer to charge an employee for a job.

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