OUR TEAM - INTRODUCING CANDICE LEE

Candice Lee has recently joined our team as an associate.

Candice previously worked as an associate with O'Melveny & Myers L.L.P. in San Francisco where she represented public and private companies in securities matters and corporate governance.  Prior to that, Ms. Lee worked as an associate with McDermott Will & Emery L.L.P. in Irvine where she gained experience as a transactional attorney on a wide range of real estate and merger and acquisition transactions.  She also served as an Extern for The Honorable Ernest M. Hiroshige, Superior Court in Los Angeles.  She received her J.D. from the University of Southern California, Gould School of Law, in 2005.

Franchise law is a complex and specialized area of law requiring focused training and expertise which Candice brings to the table. Her experience in corporate governance and securities law is exactly the right stepping stone for the practice of franchise law.  She grew up in a family owned, franchised restaurant system and understands on a personal level the ins and outs of franchising.

We're happy to have Candice on our team.

 

FRANCHISOR 101:  THE CASE OF THE UNWITTING EMPLOYER-FRANCHISOR
 
As a franchisor, you recruit franchisees to establish separate, independent business entities using your intellectual property - your brand, for example, or your business procedures - to make money, right? And since you are a franchisor, the people you recruit are your franchisees, not your employees.
 
Think again, however, if that seems straightforward, because the distinction between the franchisor-franchisee relationship and the employer-employee relationship is a fine one, and some Courts and administrative agencies blur it, to the franchisor's cost.

According to a U.S. District Court judge in Boston, Coverall North America, Inc., a Massachusetts franchisor of commercial cleaning services, did exactly that.
 
The case hinged on Massachusetts laws defining the employer-employee relationship. Like 25 other states, Massachusetts requires that franchisors meet three legal tests to demonstrate that the relationships they have with franchisees are not employer-employee relationships. Boiled down, Massachusetts law requires that franchisees operate free of franchisor control and direction, that franchisees offer products or services to customers other than their franchisor, and that franchisors and franchisees be in different businesses, offering different products or services to different customers.
 
Coverall North America failed the third of these tests, according to U.S. District Court Judge William G. Young. In fact, Young ruled, the company itself sought commercial cleaning clients in the Boston area, contracted directly with them, and sent its franchisees to do the work. In effect, Young ruled, this made the company an employer.
 
Young also seemed to see a Ponzi scheme in the relationship between Coverall North America and its franchisees.
 
"Describing franchising as a business in itself, as Coverall seeks to do," Young wrote, "sounds vaguely like a description for a modified Ponzi scheme-a company that does not earn money from the sale of goods and services, but from taking in more money from unwitting franchisees to make payments to previous franchisees." (For the full opinion, click here).

 

Young's ruling might or might not survive an appeal, but it stands as a warning to franchisors to review their own business practices and all legal documents in force between them and their franchisees to ensure that they conform to the strictures of the law. We previously advised franchisors on these issues-follow this link.
 
This is important because franchisors don't pay for their franchisees' workers' compensation insurance and unemployment coverage, not to mention health insurance and other employee benefits. Employers do. Worse, if franchisors go astray, their franchisees could sue for unpaid wages, making for big-time hits against the bottom line.