The question of whether there is a franchise agreement or a disguised employment contract continues to occupy the mind, including in recent rulings. For example, the Court in preliminary relief proceedings has very recently rendered a judgment on this issue.
What was going on? Plaintiff is a plastering company that has developed a franchise system for running plastering companies. The working method within the franchise chain was that the plaintiff was obliged to offer assignments to its franchisees on the basis of agreements. The two defendants are both self-employed and are registered as such in the Trade Register.
The provisional relief judge states that a franchise contract is characterized by the independent entrepreneurship of the ‘franchisee’. In this case, precisely this element – the presence of a certain equality of the parties – is central. The preliminary relief judge rules that in order to answer the question of whether there is a franchise or an employment relationship, all facts and circumstances must be assessed in their interrelationship.
Subsequently, the preliminary relief judge lists five facts on the basis of which it appears to him for the time being that there is no question of a disguised employment relationship, but that the defendants can indeed be regarded as independent entrepreneurs, namely
1. the defendants are not obliged to carry out the agreed work themselves, they can have someone else carry out the work in their place;
2. the possibility to take on similar work, provided that 80% of the time is available to claimant;
3. Defendants keep their own (limited) business records; They invoice (via the administrative office) their activities to the plaintiff;
4. Defendants bear a debtor risk in that if the customer does not pay, they will not receive any funds;
5. Plaintiff performs the central purchase of building materials to be processed and the purchased building materials are invoiced to Defendants by Plaintiff;
The provisional relief judge then lists a number of circumstances which, although these argue more in favor of the presence of a disguised employment relationship, in view of the five circumstances mentioned above, do not lead to the conclusion that there is a disguised employment relationship. These circumstances are the following:
1. the plaintiff is concerned with the planning of activities it has assigned to the defendants, insofar as they have not stated that they cannot be deployed on a specific date;
2. Plaintiff determines the price for the contracted work;
3. Plaintiff invoices the client;
4. although a minimum availability of 80% applies to defendants, defendants actually work 100% of their time for plaintiff, only incidentally do defendants take on work under their own name;
The moral of this statement? Whether there is a franchise relationship or a (disguised) employment relationship remains an arbitrary matter. In order to prevent discussions like this, I strongly advise franchisors to have the franchise agreement properly tested (in advance).
Ludwig & Van Dam franchise attorneys, franchise legal advice