CLIENT IN THE NEWS:   FIESTA INSURANCE #11

The Fifth Annual Top 25 Franchises for Hispanics survey selected Fiesta Insurance Franchise Corporation #11. Selection of the Top 25 Franchises was based on a detailed study sent to 3,500+ franchisors in the U.S. and Canada calculating the percentage of total operating units owned or managed by Hispanic franchisees and reported that 42% of Fiesta's current franchisees are Hispanic. Fiesta's franchisees offer personal lines insurance and prepare and file federal and state personal and business tax returns.

As reported in our May 2010 Newsletter, in March 2010, a federal District Court in Massachusetts held that janitorial franchisees were misclassified employees. In this instance, the franchisor billed all customers, collected all revenues and advanced the anticipated receipts to the franchisees each month, less royalty and management fees. If a janitorial customer failed to pay for the services within 90 days, the franchisor charged back the amount advanced to the franchisee. 

On August 31, 2011, the Massachusetts Supreme Court held in this same case, Awuah vs. Coverall North America, that "[w]here an employee has completed the labor, service, or performance required of him . . . he has earned his wage." However, the Supreme Court merely assumed that these franchisees were misclassified employees and expressed no opinion on whether the March 2010 finding by the District Court was correct. Click here for the full text of the decision. 

Until this issue is unequivocally decided, franchisors in Massachusetts and elsewhere must remain vigilant in distinguishing their franchisees from employees. Franchisors should accurately describe and portray their business in their franchise disclosure documents and franchise agreements as a seller of franchises and as a provider of support services for its franchisees, should require their franchisees to obtain, maintain and confirm the existence of business licenses and insurance coverage customarily in place for employers and, if possible and practical, require their franchisees to form entities that, themselves, employ the individual franchisee.  

Are provisions of a franchise agreement that was not signed by the franchisee enforceable against the franchisee? A federal District Court in California recently said yes.

The franchisor could not present the Court with a franchise agreement signed by the franchisee. Under the statute of frauds, an agreement with a term of more than 7 years must be in writing. However, California case law holds that "several papers, only one of which is signed by the party to be charged, may be considered together to constitute an adequate memorandum of the contract" and that "it is not necessary that the party to be charged sign all of the documents comprising the contract, if one of the documents in the series, or all of the documents taken together set forth clearly and completely all of the essential elements of the contract."

The Court found that 4 Territory and Location Exhibits to the Franchise Agreement that were signed by the franchisee constituted an adequate memorandum of the franchise agreement. Since "the Territory and Location Exhibit references the franchise agreement that [franchisor] wishes to enforce and defines a term found in that agreement,... the Court can properly consider the Territory and Location Exhibit and the referenced franchise agreement together as a single memorandum." Click here for the full text of the decision.