Janet Sparks reports at BlueMauMau that the Massachusetts Supreme Judicial Court smacked Coverall janitorial franchise system with a huge bill for labeling its employees as franchisees.
The high court ruled that the franchisor must pay back franchise related fees, including franchise fees, promissory note payments, additional business fees, and payments for insurance.
Experts think the ruling that franchisees can be disguised employees will ripple down to other franchise systems and other states.
Coverall argued that the franchisee should only be allowed to collect fees directly related to the misclassification. Because the additional fees Pius Awuah sought were the result of his contract agreement with the franchisor, Coverall asserted that they should not apply to the damages he sought.
Coverall SJC Decision
U.S. District Court Judge William G. Young ruled (pdf) that the misclassified employees could collect wages, insurance premiums and other employment benefits, but the attorneys for the franchisees weren’t satisfied. Shannon Liss-Riordan of Lichten & Liss-Riordon stated that her clients should also be paid all fees. She said, “By requiring companies to fully reimburse employees for all the fees they incurred as a result of misclassification, the court will send a message to employers that wage law violations will not be tolerated.”
The judge then certified the Awuah v Coverall case to Massachusetts highest court after determining that state wage laws require employers to cover certain statutory costs of doing business, and that shifting such expenses to a misclassified worker constitutes damages incurred. Because the Supreme Judicial Court had no controlling precedence, Judge Young submitted pertinent questions to give the court the opportunity to set a precedent in defining the damages that should be available to the employees misclassified as independent contractors.
On one pertinent question addressing whether Coverall could deduct franchise fees from the employees’ wages, the state’s Supreme Court concluded, “No. . . the Wage Act forbids the deduction.”
Prior to the decision the case had brought criticism from the franchisor community. Coverall attorney Michael D. Vhay of Boston’s DLA Piper stated that broadening the damages beyond wages and benefits would produce a flood of litigation and drive franchisors from the state because they would be unable to collect fees from franchisees.
Read More at: BlueMauMau