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Legal Briefing

Pennsylvania Cleans Up Franchising Case

Bad performance by a franchisee can negatively impact the value of the franchise as a brand.

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.

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