The Awuah Case: Bellwether or Outlier?

Transcription

1 Place image here Size: 2.58 x 2.58 Position: horizontal 0 vertical 0 Implications of new case may pose potential risks to franchisors across the board The Awuah Case: Bellwether or Outlier?

2 Your Hosts Arthur L. Pressman Partner Franchising & Distribution Intellectual Property Litigation & Dispute Resolution Gregg A. Rubenstein Partner Franchise & Distribution Labor & Employment Litigation & Dispute Resolution Diana Vilmenay Associate Franchising Litigation & Dispute Resolution 2

3 CLE Information An attendance CLE verification code will be announced at the end of the presentation. Please make a note of it. CLE documents are downloadable from the Adobe Connect document pod on your screen. Complete and return your CLE certificate of attendance and evaluation form to Nixon Peabody s Accreditation/Marketing Manager (Vanessa York vyork@nixonpeabody.com). When we receive your attendance verification form we will issue you a certificate of completion. You will also receive a link to the presentation slides after the program. 3

4 4 Background of Coverall Litigation in Massachusetts Litigation against Coverall, a global commercial cleaning franchise, has been ongoing in Massachusetts since In lawsuits and other proceedings various Coverall franchisees allege that it misclassified them as independent contractors instead of employees (and that it had also engaged in unfair or deceptive trade practices). The suits stem from changes to Massachusetts independent contractor law in 2004.The changes tightened the standards of Massachusetts three part test for determining employment status. Mass. Gen. Laws Ch. 149, 148B. Arthur L. Pressman Partner Boston, MA

5 Awuah, et al. v. Coverall North America, Inc U.S. Dist. LEXIS (D. Mass. Mar. 23, 2010) 5 The Coverall System Franchisees receive FTC-compliant franchise disclosure documents and sign franchise agreement specifying their status as independent contractors. Franchise owners complete mandatory training programs and wear approved uniforms and ID badges while on customer site Franchisor has customer contracts and performs all billing and collection, remitting balance of revenues to franchisees after deducting royalty and other fees. Arthur L. Pressman Partner Boston, MA

6 6 Overview of Awuah Litigation Plaintiff, Pius Awuah, a self-described Coverall worker, filed a class action lawsuit on behalf of himself and others similarly situated in 2007 alleging breach of contract, misrepresentation, and employment misclassification. Coverall s Massachusetts franchisees move on their misclassification claim. Federal court grants partial summary judgment to franchisees. Franchise community is split as to whether the court s decision will have a significant effect on franchising. Arthur L. Pressman Partner Boston, MA

7 7 Awuah, et al. v. Coverall North America, Inc U.S. Dist. LEXIS (D. Mass. Mar. 23, 2010) MASSACHUSETTS INDEPENDENT CONTRACTOR LAW Massachusetts, like 25 other states, has adopted a three-part test known as the ABC test to determine individuals employment classification. A the worker/franchisee is sufficiently free from the franchisor s control and direction in connection with the performance of services, both contractually and in fact; B - the worker s services are performed outside the putative employer s/franchisor s usual course of business; and C - the worker is customarily engaged in an independently established trade, occupation, profession, or business that it could perform for other customers outside of the franchise. The burden of proof is on the putative employer and its failure to meet that burden as to any one prong will result in an employer-employee relationship. Gregg A. Rubenstein Partner Boston, MA

8 Awuah, et al. v. Coverall North America, Inc U.S. Dist. LEXIS (D. Mass. Mar. 23, 2010) 8 In its summary judgment opinion, the Awuah Court focused on only one prong prong B Court rejected concept that franchisor was engaged in a different type of business than franchisee s. Both, according to the court, are in the cleaning service business. Judge refers to the concept of a franchisor being in a business distinct from that of its franchisees as a modified Ponzi scheme. Gregg A. Rubenstein Partner Boston, MA

9 9 How the Court Got it Wrong Rejects decades of case law recognizing legitimacy of business format franchising and independent status of franchisees. Fails to recognize that Coverall performs no cleaning services. Analysis is based on gross simplification of business model. Implicates all supply chain business models involving more than one entity. Fails to acknowledge FTC Rule and States recognition that business format franchising is viable business model with appropriate safeguards already in place. Gregg A. Rubenstein Partner Boston, MA

10 10 Broader Implications Status of independent contractors Potential for increased wage act claims Health insurance and unemployment insurance concerns Workers compensation Social Security Attorneys fees Diana Vilmenay Associate Washington, DC

11 11 Suggestions Review franchise agreement and disclosure documents to ensure they properly describe the franchisor s business. Think about particular business arrangements Review state laws, particularly where there is a large/significant presence Focus on ongoing legislative efforts Diana Vilmenay Associate Washington, DC

12 12 Related Articles Franchisees: We re Employees, Not Contractors The Wall Street Journal, May 10, 2010, click here to read: Laws Put Squeeze on Franchisors, Independent Contractors Say Tightening of U.S., Mass. Measures Hurt Livelihoods, Boston Globe, April 7, 2010 Pandora s Law, When Franchisees Are Ruled Employees, All Bets Are Off, Franchise Times, May 2010 Franchisees Miscast as Independent Contractors, Massachusetts Lawyers Weekly, April 5, 2010 Are Franchisees Independent Contractors? Not Everyone Agrees, Franchising World, (Arthur Pressman, Gregg Rubenstein), July 2008 Ruling Threatens Viability of Franchise Businesses in Massachusetts, IFA press release, March 2010 Diana Vilmenay Associate Washington, DC

13 13 Related Presentations Have Your Franchisees and Their Employees Become Your Employees Without Your Knowledge? (Gregg Rubenstein, Donald Burleson and Kris Carey), will be presented at IFA Legal Symposium May 17-18, 2010 Franchisee or Employee? The Risk of Misclassification on Franchise Relationships, (Arthur Pressman and Carla Wong McMillian), ABA Forum on Franchising, Oct Diana Vilmenay Associate Washington, DC

14 Questions? Arthur L. Pressman Gregg A. Rubenstein Diana Vilmenay 14

15 CLE Information Attendance CLE Verification CODE: NPCLE NPCLE 05/11/10 Send forms to: Vanessa York 15

16 Next in Our Monthly Webinar Series: International Franchising Issues Since the 1960s, international franchising has grown significantly due to a number of push and pull factors. Domestic saturation, increased competition and diminishing profits in the United States have pushed franchisors to examine their opportunities abroad. At the same time, favorable macroeconomic, demographic and political conditions abroad have pulled U.S. franchisors into markets overseas. In this interactive web seminar, you will learn: - the latest developments in franchise and related laws across the globe - practical tips on structuring, documenting and negotiating cross-border deals; and - how to avoid the most common mistakes when expanding internationally. Date: June 8, 2010 Time: 12:30 EDT to 1:30 EDT Location: Online webinar Speakers: Andrew P. Loewinger, Partner, Washington, DC Kendal H. Tyre, Partner, Washington, DC Steven B. Feirman, Partner, Washington, DC To register: You will receive an evite, or go to: nixonpeabody.com/events 16

17 On the Nixon Peabody Website Recorded webinars Are Franchisors Liable for Employment Discrimination by Their Franchisees? Is Social Networking a Tool for Developing Your Franchise Business or a Dangerous Game? Vicarious Liability of Franchisors: A trend towards a more unified approach and what it means for your system Alerts Federal Judge Likens Franchising as Business to Modified Ponzi Scheme and Holds that Franchisor is Employer of Massachusetts Franchisees U.S. Supreme Court raises threshold for constructive termination and constructive nonrenewal Vietnam s franchise laws laid groundwork for increased franchising activity Upcoming events IFA Legal Symposium, May International Franchising Update (webinar) June 8 17

18 Thank You! Arthur L. Pressman Gregg A. Rubenstein Diana Vilmenay 18

19 Experience For more than 25 years, Arthur has been recognized as a leading franchise lawyer with a nationwide practice, specializing in the representation of franchisors. Before joining the firm s Boston office in 2003, Arthur practiced in Philadelphia, first with the boutique franchise law firm that he co-founded in 1973, and then as co-chair of the Franchise and Distribution Section of an AmLaw 100 firm. Arthur L. Pressman 100 Summer Street Boston, MA Phone: apressman@nixonpeabody.com Practice Franchise & Distribution Team Co-Chair Litigation & Dispute Resolution Education Temple University, J.D. University of Pennsylvania B.A. Admissions Admitted to practice in Massachusetts, New York and Pennsylvania. 31 Arthur represents world leaders in franchising and retail distribution, and numerous hotel, restaurant, real estate, and consumer services systems. Under his leadership, the group has handled litigation and transactions for clients in more than seventy countries. Arthur began representing franchise and distribution clients in 1975, and he has focused exclusively in this area for 25 years. He is recognized as one of the leading franchise trial lawyers in the nation and has litigated cases on a national basis. In its 2008 edition Chambers USA wrote that Mr. Pressman is a great litigator with an enviable market reputation, and widely acknowledged for his expertise as a trial lawyer, he has acquired renown for his high level of client care and has acted for clients across the globe. Mr. Pressman was identified in 2008 Chambers USA as one of the top six individual franchise lawyers in the United States. Arthur served as the first chair of the American Bar Association Forum on Franchising, Litigation and Dispute Resolution division. He has also served on the American Bar Association Governing Committee of the Forum on Franchising. Arthur is a member of the CPR Institute for Dispute Resolution s Franchise Panel of Distinguished Neutrals and a certified JAMS-trained mediator, concentrating in the resolution of franchise and commercial disputes. Mr. Pressman who has been named one of the top 100 franchise lawyers in the country by Franchise Times every year since its inception, was selected by his peers as a Massachusetts Super Lawyer in 2005 through 2008, and recognized as a New England Super Lawyer by Boston Magazine. He has also been listed in The Best Lawyers in America.

20 Experience Gregg is a member of the firm s Business Litigation Group. He focuses his practice in the areas of franchise and distribution litigation, complex commercial litigation, and trade secret matters. Gregg represents franchise clients on a nationwide basis in a variety of forums. Past representations include enforcement of post-termination covenants not to compete, enforcement of arbitration agreements and franchise terminations. Gregg A. Rubenstein 100 Summer Street Boston, MA Phone: grubenstein@nixonpeabody.com Practice Franchise & Distribution Litigation & Dispute Resolution Labor & Employment Education Boston University, J.D., magna cum laude Cornell University, School of Industrial and Labor Relations, B.S. Admissions Admitted to practice in Massachusetts and New York. 32 Gregg also has experience with and represents clients in a variety of labor and employment matters, including arbitration proceedings and defense of wrongful termination and employment discrimination claims before federal and state courts. Gregg has co-authored multiple papers on franchise matters. These papers include: Current Ethical Issues in Arbitration and Mediation which was presented at the 2006 International Franchise Association Legal Symposium and the 2007 Franchise Law Update which was presented at the 2007 Ontario Bar Association Annual Franchise Law Conference. Gregg is a scheduled speaker at the 2008 International Franchise Association Legal Symposium and was featured in the October 22, 2007 edition of Massachusetts Lawyers Weekly. Gregg was selected as a Rising Star in the Massachusetts legal community by Boston Magazine in 2005, 2006, and Affiliations Gregg is a member of the American Bar Association, Massachusetts Bar Association, Boston Bar Association, and New York State Bar Association.

21 Experience As an associate in the Litigation & Dispute Resolution Group, Diana Vilmenay represents clients in a broad range of commercial civil litigation and general corporate defense matters. She has litigated and argued motions on contract, commercial landlord and tenant, and employment disputes. Diana Vilmenay 401 Ninth Street, NW, Suite 900 Washington, DC Phone: dvilmenay@nixonpeabody.com Practice Franchise & Distribution Litigation & Dispute Resolution Education Howard University, J.D. Georgetown University, B.A. Admissions Admitted to practice in Virginia and the District of Columbia. 42 Diana works with clients on a number of issues including franchising and federal and state income tax matters. As a member of the Franchise & Distribution Team, she assists clients on various aspects of franchising and licensing domestically and abroad. Diana was a summer associate at Nixon Peabody. Prior to joining the firm, Diana worked as a law clerk for Marriott International, Inc. s Legal Department, where she supported the corporate transactions, asset management, and lodging operations groups and performed extensive legal research. While in law school she also served as cocaptain of the moot court team and won brief writing awards in two competitions. She was the first District Four recipient of the Equal Access to Justice Scholarship awarded by the National Association of Women Judges. Affiliations Diana is a member of the American Bar Association (Forum on Franchising) and the International Franchise Association. She is also a member of the ABA s Young Lawyers Division, Women in the Profession Committee. Languages Fluent in French and conversational in Spanish.