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A Franchise Lawyer Who Can Help Clients Address Misclassification Issues

In most cases, the relationship between employer and employee is relatively straightforward. However, as the gig economy continues to grow and franchisors create new and innovative franchise structures, the traditional definition of “employee” has begun to evolve. The courts and the law are struggling to keep up, and recent developments challenge the very framework of franchising. As a result, misclassification is a growing issue for many franchisees and franchisors.

Unfortunately, you can’t wait for the law to settle. At Luther Lanard, PC, we stay ahead of these developments, both in California and beyond, to provide our clients with timely and relevant legal advice.

What is Misclassification?

Misclassification can run both ways. An employee or independent contractor could actually be a franchisee or a franchisee could be an employee. In some circumstances, salespersons, field representatives, dealers or distributors may be in a franchise relationship, but their company is not complying with franchise laws. We can evaluate business relationships to determine whether they were properly categorized or whether an inadvertent franchise was created. If it is a franchise relationship, we can ensure you are properly compensated for any damages and that you are given franchise law protections. Where a franchise relationship has been misclassified, we can often use misclassification to negotiate transfers, renewals, and terminations or address fraud or disclosure issues.

On the other hand, employers have sometimes characterized employees as franchisees to shift costs to the employees without a legitimate franchise relationship. In those situations, franchisees are in name only and are treated as employees who have to pay the costs of the business. We can determine whether a franchisee is an employee of the franchisor. In that circumstance, the franchisor may be liable for complying with wage and hour laws as well as reimbursing the costs and fees incurred as a “franchisee.”

No matter which situation you are in, the way your business is classified in relation to the franchisor will have a radical impact on your business. We can walk you through the implications of the various outcomes, help you understand your options, and provide you with the legal guidance you need to continue to grow your business.

A Challenging Landscape for Franchisees

Franchisees have to operate in a complex legal web of state and federal laws, regulations, and court decisions, making it challenging to find a clear solution to misclassification issues. The current debate revolves around when franchisees may be misclassified as employees. The law is unclear. For example, the FTC Franchise Rule identifies that a franchisor will exert significant control over the franchisee. Meanwhile, many states, including California, use the “ABC” test to distinguish between independent contractors and employees, one element of which requires that an independent contractor be largely free from control by the employer. The end result is that some courts find franchisees to be employees using the ABC test, while others may simply recognize the control exercised by the franchisor as consistent with franchise investment and relationship laws.

These ambiguities can make it difficult for franchisees to operate. For some, it may be that they have been classified as an employee when they should be classified as a franchisee. In other cases, there may be pressure to reclassify a franchisee as an employee. Whatever the case may be if you have questions concerning your relationship or some other business’s relationship with a franchisor, franchise lawyer Doug Luther can get you the answers you need.

Concerns About Misclassification? A Franchise Attorney Can Help

Misclassification can profoundly impact your business, so it’s important to address the issue head-on and find the right solution. If you are facing a misclassification issue, a franchisee lawyer can help. Whether you are in California, Florida, Pennsylvania, or anywhere in the United States, contact us today to learn more about how we can help.