Peter Loh Discusses Massachusetts’ Employee Status Rulings, Impact for Franchisors

Foley & Lardner LLP Partner Peter Loh is quoted in the Law360 article, “Franchisors’ Fear Calms After Mass. Employee Status Rulings, “ discussing a pair of employment law appellate decisions in Massachusetts.

Loh said the ABC test, a three-part test used in Massachusetts to determine whether an individual is any employee, creates difficulties for franchisors because the defining feature of their business model is that they have a role in how franchisees operate.

“When you come in with something like the ABC test,” he explained, “and you’re litigating this issue of whether or not the franchisee is an employee, then you’re calling into question the very essence of the model.”

One of the factors of the ABC test is whether the employer exercises control over the individual’s work. Loh noted that because franchisors have to develop standards for how operators use their name, products, processes, and other characteristics that consumers recognize, they run right into the ABC test.

“The franchisee — at the heart of it, the critical concept — is an independent business owner and operator,” Loh said.

Loh added that there are so many variables that it is hard to enumerate specific things that franchisors should or should not do, because their business decisions need to be viewed collectively.

“I think that franchisors in general are navigating this new regime by tightening up their agreements, making it more explicit that the franchisees are independent contractors, that they’re operating their own independent businesses … [and] educating franchisees as to what this regulatory regime means for their relationship,” he said. “Because of that, they may have to scale back the training that they give the franchisees because they don’t want to give the appearance or even substantively create too much of a record, if you will, of control.