Recent Cases -- March 2012

Franchisees Deemed "Independent Contractors"

A California court held that two janitorial services franchisees were independent contractors, not employees of the franchisor, and thus were not entitled to workers' wages and job benefits. In California, an employment relationship will be deemed to exist where the person to whom the services are being rendered exercises sufficient control over the management and means of accomplishing the desired result. According to the court, in a franchise context, the burden is on the franchisee to show that the franchisor exercised control beyond what is necessary to protect and maintain its interest in its trademark, trade name, and good will.

In this case, the court noted that the franchisees maintained the right to select and supervise their employees, determine their employees' pay, and decline accounts. The franchisees purchased their own equipment and supplies and, aside from franchise fees, retained the revenues from their services. Importantly, the franchisees' franchise agreements explicitly provided that the franchisees were independent contractors. With this evidence against them, the court held that the franchisee failed to raise a triable issue.

Juarez v. Jani-King of California, Inc., N.D. Cal., No. 09-3495, January 23, 2012.

Court Rules That Truck Drivers Are Not "Franchisees"

A California court held that two truck drivers failed to adequately allege that the "Driving Opportunities" they purchased constituted "franchises" under the California Franchise Investment Law (CFIL). Like many state franchise laws, the CFIL defines a "franchise" by a three-part test: 1) the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system; 2) operation pursuant to a plan or system substantially associated with the franchisor's trademark, service mark, etc.; and 3) the payment of a franchise fee. Here, the court found that the truck drivers' allegations failed to satisfy the first two prongs of the test.

The truck drivers argued that, by picking up, loading, transporting, unloading, and delivering goods for third-party customers on behalf of the trucking company, they were engaged in the business of offering, selling, and/or distributing big rig truck driving, labor, and other services to those customers. The court disagreed, however, noting that the recipients of the drivers' services were the trucking company's customers, not the drivers'.

In addition, the drivers argued that the second prong of the test was satisfied because their agreement with the trucking company required the drivers to display the company's commercial logo on their trucks and to identify themselves to customers as drivers for the company. The court found this argument similarly unpersuasive, noting that the drivers' use of these commercial symbols did not further the direct sale of their services to their own customers.

Roberts v. C.R. England, N.D. Cal., No. 11-2586, January 25, 2012.

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