Legal

Pennsylvania Cleans Up Franchising Case

By Staff Report

Dec. 16, 2016

While recognizing that franchising is a major part of the national economy, the 3rd Circuit nevertheless made it much more difficult to be a franchisor in Pennsylvania. In Williams v. Jani King of Philadelphia Inc., two franchisees of Jani King filed a class action lawsuit against the company claiming that they, and others similarly situated, should have been treated as employees. The plaintiffs moved for class certification, relying primarily on the franchise agreement. Plaintiffs argued that the degree of control that Jani King exercised over its franchisees through the franchise agreement and related franchise documents was sufficient to create an employer/employee relationship. The trial court granted class certification, and Jani King appealed. The Court of Appeals for the 3rd Circuit upheld the grant of class certification. Examining the franchise agreement and related documents, the Court of Appeals concluded that the documents could establish the ability to control how the franchisees performed their work, the most critical factor in determining whether or not someone is an employee. While recognizing that some degree of control was a normal part of the franchise relationship, the Court of Appeal upheld class treatment of the question.

Impact: Franchisors need to exercise some control over their franchisees to maintain the value of the franchise — bad performance by a franchisee can negatively impact the value of the franchise as a brand. Franchisors must be aware, however, that exercising too much control over how the franchisees perform could transform the relationship from franchisor/franchisee to employer/employee.

Mark T. Kobata and Marty Denis are partners at the law firm Barlow, Kobata and Denis, which has offices in Beverly Hills, California, and Chicago. Comment below, or email editors@workforce.com.

About Workforce.com

blog workforce

We build robust scheduling & attendance software for businesses with 500+ frontline workers. With custom BI reporting and demand-driven scheduling, we help our customers reduce labor spend and increase profitability across their business. It's as simple as that.

Book a call
See the software

Related Articles

workforce blog

Compliance

Minimum Wage by State in 2022 – All You Need to Know

Summary The federal minimum wage rate is $7.25, but the rate is higher in 30 states, along with Washing...

federal law, minimum wage, pay rates, state law, wage law compliance

workforce blog

Legal

California’s push for a 32-hour workweek explained, and how to prepare

Summary: California is considering a 32-hour workweek bill for businesses with over 500 staff 4 day wee...

32 hour workweek, 4 day workweek, california, legislature, overtime

workforce blog

Legal

A business owner’s guide to restaurant tipping law

Business owners in the restaurant industry are in a unique position when it comes to employee tips. As ...

restaurants, tip laws, tipping