Franchisees May Be Employees
The Massachusetts Supreme Court has ruled that the dispute over whether plaintiffs who entered into franchise agreements to operate convenience stores have been misclassified as independent contractors should be resolved under the three-prong test in the independent contractor statute.
The 1st U.S. Circuit Court of Appeals certified a question asking whether the statute’s three-prong test “applies to the relationship between a franchisor and its franchisee. The franchisor must also comply with the FTC Franchise Rule.”
The court said that where a franchisee is an ‘individual performing any service’ for a franchisor, the three-prong test in the independent contractor statute applies to the relationship between a franchisor and the individual and is not in conflict with the franchisor’s disclosure obligations prescribed by the FTC Franchise Rule.
Why This Is Important… this decision means that all franchise agreements in Massachusetts have to comply with the independent contractor law, a statute designed to make the employee category more inclusive.