On June 23, the Court of Appeals of Georgia announced its decision in Jan-Pro Franchising International, Inc. v. Depianti finding that a Jan-Pro franchisee was not the employee of Jan-Pro under the Massachusetts Independent Contractor Statute. The Court’s decision reversed an earlier decision by the trial court which had found on summary judgment that the franchisee did qualify as an employee of Jan-Pro under the Massachusetts law.

The Court of Appeals applied a three-pronged test to determine if Depianti, who was a unit franchisee, was an employee of Jan-Pro. First, it looked to see if Depianti was free from the control of Jan-Pro in conducting its business and found that since the franchise agreement was not between Jan-Pro and Depianti but between a Jan-Pro master franchisee and Depianti, Depianti was free from the control of Jan-Pro. Secondly, the Court examined whether the services performed by Depianti were outside the usual course of business of the “employer” or Jan-Pro. As to this element, the Court determined that Jan-Pro was not in the business of providing cleaning services directly to customers, which was the business of the unit franchisee, but instead Jan-Pro was in the business of licensing its business model to master franchisees who then entered into the franchise agreement with the unit franchisee. Finally, the Court had to decide if Depianti should be viewed as operating an independent trade or business because Depianti could perform his services for anyone he chose or if the nature of the business meant that Depianti was dependent on a single employer for all his business. In other words, the court had to explore whether Depianti “wore the hat” of an employee of the employer or if he “wore the hat of an independent enterprise”. Because Jan-Pro did not control the day-to-day actions of the unit franchisee’s business, the unit franchisee operated a different type of business than Jan-Pro and Jan-Pro was not a party to the franchise agreement with the unit franchisee, the Court found that Depianti operated a business independent of Jan-Pro and was not the employee of Jan-Pro. However, in discussing the third element, the Court noted that while the unit franchisee could expand his business and perform work for several clients, under the business model licensed by Jan-Pro, the accounts would become or remain the property of the master franchisee and suggested that if the question were whether the unit franchisee “wore the hat” of the master franchisee, it might have reached a different decision on the independence of the business. So although the Court determined that all three factors of the applicable test showed that the unit franchisee was not an employee of Jan-Pro, the decision leaves open the question whether the unit franchisee could be determined to be an employee of the master franchisee.

These decisions are important to franchisors because we expect to see several additional decisions on this question as some states and some franchisees push to find an employer-employee relationship which will permit them to hold the franchisor responsible for taxes, such as workers compensation and unemployment taxes. The same analysis might also be used by customers of franchised units who sue the franchisor for activities occurring on the franchised premises. Franchisors should have counsel review their franchise agreements, and their operations, to minimize the likelihood they can be found to be the employer of their franchisees.