Franchise and labour law

It is important for franchisees and franchisors that it is clear to both parties what they can expect from each other and what obligations they are under in that relationship. In general, a franchise contract is concluded for this purpose. What is special about the franchise construction is the use of a joint formula, e.g. by way of joint advertising or uniform business operations. Another feature is the independent entrepreneurship of the franchisee. It is therefore not the parties’ intention to conclude an employment contract whereby the franchisee is employed by the franchisor.

 

Franchisee or employee?

Nevertheless, the situation might arise in which a franchisee operating as a self-employed worker without employees (in Dutch: ZZP'er) is regarded as an employee, something that may have major implications. For example, the Tax Authorities or a pension fund might take the view that the franchisee is actually an employee and that contributions must therefore be deducted from the wages. The franchisee may also take the position that he or she is actually an employee and is therefore for example entitled to continued payment of wages during illness or to protection against dismissal.

An employment contract requires that one party, the employee, undertakes to perform work for the other party, the employer, for a certain period of time and in return for remuneration. This involves a relationship of authority and the employee must perform the work him or herself; he or she cannot ask someone else to perform the activities on his or her behalf. If and when a franchise contract should in fact be qualified as an employment contract depends on all the circumstances of the case. According to the Supreme Court, the decisive factor in that case is not what the parties intended, but that regard should also be had for the way in which effect was actually given to the agreement by the parties.

 

Relevant judgments

In 2008 it was ruled by the Groningen District Court, in a case where a plasterer's company had developed a franchise system and where this issue was at stake. [1] According to the system developed by the plasterer's company, the franchisor was obliged to offer contracts to the franchisees. Two franchisees, who were registered with the Chamber of Commerce as self-employed workers without employees, took the view that this in fact amounted to an employment contract. According to the court, a number of factors were relevant to the question whether this concerned a franchising relationship or an employment contract.

 

Factors suggesting a franchising relationship:

(a) the franchisees could, in principle, have themselves replaced;

(b) they could carry out similar activities for other customers;

(c) they kept their own (limited) business accounts;

(d) they did not receive money if customers did not pay and therefore were exposed to a default risk; and

(e) the franchisor had purchased building materials and charged the franchisees for the materials used.

 

Factors rather suggesting an employment contract:

(f) the planning was done by the franchisor;

(g) the price for the work was determined by the franchisor;

(h) invoices were sent to customers by the franchisor; and

(i) the franchisees actually worked full time for the franchisors, so that point (b) was practically impossible.

In the end, the court reached the conclusion that this was a case of entrepreneurship (franchising relationship) and that the contract therefore was not an employment contract. The court in that respect attached particular importance to points a, b and c.

 

Practical tips

It is important to structure the franchise agreement in such a way, that it is not only a franchise contract on paper, but is also given effect to as such in practice. Therefore, make sure that:

  • the franchisee has the possibility to itself arrange for a replacement;
  • the franchisee can also carry out other assignments (when possible);
  • the franchisee keeps its own accounts;
  • the franchisee bears a certain entrepreneurial risk; and
  • the franchisee is itself responsible for the performance of the contracts.

However, these are only guidelines, not hard rules. Are you not sure if your franchise contract might not turn out to be an employment contract after all? The Tax Authorities can check this for you, but you can of course also contact one of our specialists.

[1] Groningen District Court 16 July 2008, ECLI:NL:RBGRO:2008:BD7453