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24 March 2020
Some jurisdictions have recently held that certain independent workers (eg, Uber drivers) are actually classified as employees. This raises the question of whether franchisees should also be classified as employees. However, on 3 February 2020 the Limoges Court of Appeal dismissed the claim of a franchisee who sought to be classified as an employee.
On 30 September 2013 Mr Z entered into a franchise contract with La Pataterie Développement – which franchises restaurants specialising in potato-based dishes – in order to operate a restaurant in Provins.
On 3 October 2013 Z incorporated his company, MGMT, to operate this restaurant pursuant to the franchise contract.
On 29 May 2017 Z filed a lawsuit before the Limoges Employment Tribunal. He claimed that he should be classified as an employee and requested payment of various sums corresponding to, among other things, wages and paid holidays.
On 13 November 2018 the Limoges Employment Tribunal dismissed Z's claim. It considered that he had failed to demonstrate any master-servant relationship between him and La Pataterie Développement.
On 13 December 2018 Z appealed this decision before the Limoges Court of Appeal. He contended that a master-servant relationship existed because it was impossible for him to:
The franchisor argued that there was no master-servant relationship as the franchisee's independence was not incompatible with the franchisor's control over its know-how and brand image.
On 3 February 2020 the Limoges Court of Appeal upheld the Limoges Employment Tribunal's decision, dismissing all of Z's claims.
The court considered that under Article L 1121-1 of the Labour Code, an employment contract implies a commitment to work for another person, under the subordination of the latter and in exchange for remuneration. This subordination results from the performance of a job under the supervision of an employer who has the power to give instructions, verify compliance therewith and impose disciplinary measures in case of non-compliance.
On this basis, the court reiterated that a clause of the franchise contract stated that the franchisee was an independent businessperson who was fully responsible for his business, was not authorised to act on behalf of the franchisor and was not its agent, commercial representative, attorney-in-fact, employee or partner.
In addition, the court highlighted that the franchise contract stated that the franchisee had to comply with the norms and obligations specific to the La Pataterie franchise, which aimed to develop and maintain the overall franchise concept. These included:
With respect to the maximum recommended retail price, the court held that this resulted from the franchise's brand image, which sought to offer copious meals at a low price. However, the franchisee was still free to set his menu and prices within this limit; the existence of menus created by the franchisor did not limit his freedom in this respect, as these menus were modifiable to fit local needs.
As regards the audit policy, the court considered that the use of a specific software program, which rationalised audits in the franchise network, enabled the franchisor to monitor the franchise network and enabled franchisees to receive swift feedback from the franchisor after onsite visits in order to adapt to the franchise's commercial norms and standards.
In terms of the reporting obligation, the court stated that this was provided for in the franchise contract as a means of enabling the franchisor to receive feedback from the franchisees in order to maintain and develop the know-how transferred by the franchisor.
In general, the court held that neither these procedures, which aimed to preserve the model defined by the franchisor, nor the norms and standards (eg, regarding interior design, background music and days of operation), which formed part of the franchise's brand image, jeopardised the independence of the franchisee, who benefited from the franchise's reputation. Ultimately, Z had failed to demonstrate that La Pataterie Développement had interfered in the management of his business.
As for the early termination clause, the court ruled that it could not be regarded as an authority to issue instructions or impose disciplinary measures insofar as it constituted a customary clause in any commercial contract to apply in case of non-performance and ensure the co-contracting party's rights.
The court held that all of these constraints coincided with the principle of any franchise, which consists of franchisees reproducing the successful model of the franchisor and excludes any master-servant relationship.
In the gig economy, the boundary between independent workers and employees can be unclear. An relationship will not be classified as an employment relationship simply because it is the parties' will or because they call their contract an employment contract. Rather, it will depend on the circumstances under which the work is performed. In this respect, the demonstration of a master-servant relationship will be decisive.
Numerous people without an employment contract have sought to be classified as employees, such as freelancers, reality TV participants and Uber drivers. The lawsuit brought by Z aligns with this trend. However, as opposed to Court of Cassation's 4 March 2020 decision which classified an Uber driver as an employee, this decision from the Limoges Court of Appeal seems to clarify that a franchisee can hardly be classified as an employee due to the specific features of any franchise contract.
To avoid any risk, franchisors should insert in their franchise contracts specific clauses to exclude any master-servant relationship. In particular, they should ensure to include a clause which states that the franchisee is an independent businessperson who is fully responsible for the operation of their own business, that the franchisee does not act on behalf of the franchisor and that all procedures put in place are implemented to preserve the franchise concept and brand image. Further, franchisors should avoid any interference in the management of outlets by franchisees.
For further information on this topic please contact Raphael Mellerio or Bertrand Baheu-Derras at Aramis Law Firm by telephone (+33 1 53 30 7700) or email (firstname.lastname@example.org or email@example.com). The Aramis Law Firm website can be accessed at www.aramis-law.com.
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