The Aftermath Of Awuah: Are Courts Encroaching On A Franchisor's Traditional Protections From A Franchisee's Employment Decisions?

There is growing concern over whether courts will deem franchisees "employees" or "joint employers," as opposed to contractors or wholly separate enterprises, as further decisions are handed down in the wake of the highly publicized Awuah case and courts grapple with today's complex franchisor-franchisee relationships.

BACKGROUND: AWUAH V. COVERALL NORTH AMERICA, INC.

In 2010, the United States District Court for the District of Massachusetts held in Awuah v. Coverall North America, Inc. that a group of janitorial franchisees were misclassified as independent contractors. Awuah v. Coverall N. Am., Inc., 707 F. Supp. 2d 80, 84-85 (D. Mass. March 23, 2010). The case began when a group of franchisees sued Coverall North America, Inc., a commercial cleaning company. The franchisees made three major arguments. First, they argued that Coverall misrepresented the amount of money they could make each month by purchasing a franchise. Second, they alleged that Coverall systematically breached franchise agreements by not providing or offering adequate work to produce the promised level of monthly income. Third, they claimed that they were improperly classified as independent contractors and thereby denied various employment benefits, including minimum wages, overtime pay, and eligibility for unemployment and workers' compensation. The plaintiffs sought compensation for the alleged violations, including statutory trebling of wage-related damages, and attorneys' fees and costs. The franchisees filed a motion for partial summary judgment on the independent contractor issue in December 2009. In a March 23, 2010 decision granting the motion for partial summary judgment, the United States District Court for the District of Massachusetts ruled that the franchisees had been misclassified as independent contractors and instead were "employees" under Massachusetts law. Awuah, 707 F. Supp.2d at 80 (D. Mass. 2010). The court held that Coverall failed to carry its burden to satisfy Massachusetts' test for determining whether an individual is an independent contractor. The Massachusetts test requires that three elements must be satisfied in order for an independent contractor relationship to exist: (i) the worker is free from control and direction in connection with the performance of a service; (ii) the service performed is outside the usual course of business of the employer; and (iii) the worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. The court found that the second prong (service outside the employer's usual course of business) was not met. The court found that Coverall was engaged in the same business as its franchisees for several reasons, including the fact that Coverall sells cleaning services, which are the same as the services the plaintiffs provide. Because the Coverall franchisees did not perform services outside the course of Coverall's business, the court held that they were not independent contractors but were instead Coverall employees. After the March 23, 2010 ruling, both parties filed cross-motions for summary judgment regarding the damages claim of one of the misclassified franchisees. The court subsequently held that franchise fees that the franchisee paid under its contract with the franchisor were freely undertaken and would not be considered damages under the Massachusetts misclassification statute. Awuah v. Coverall N. Am., Inc., 2010 WL 3766486, at *2 (D. Mass. Sept. 28, 2010). The court also stated that Coverall was required to reimburse the franchisee for any insurance premiums that Coverall was statutorily mandated to provide. In addition, the court required Coverall to pay interest on wages that were paid outside of the statutorily required time frame. Id. at *3. Finally, the court found that Massachusetts state law provided no clear guidance concerning damages recoverable by a misclassified franchisee and certified questions concerning damages and "related interpretations of the Massachusetts General Laws" to the Massachusetts Supreme Judicial Court for resolution. Order of Certification at 10, Awuah v. Coverall N. Am., Inc., 2010 WL 3766486 (2010) (No. 07-10287-WGY).

DEVELOPMENTS SINCE THE 2010 AWUAH DECISIONS

2011 and 2012 Awuah Decisions

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