A trio of decisions emanating from California could prove of great peril to franchisors nationwide.

'Dynamex'

The first decision came from the Supreme Court of California in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903, 416 P.3d 1 (2018), and addressed when an individual should be properly classified as an “employee” or an “independent contractor” (of critical importance in franchising since virtually every franchisee is an independent contractor of its franchisor). As the court noted, the distinction is crucial since “…if a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker's compensation insurance, and, most relevant to the present case, complying with numerous state and federal statutes and regulations governing the wages, hours and working conditions of employees.”

In franchising, there are concerns of equal or greater importance: if a franchisee is deemed to be an employee, rather than an independent contractor, then its franchisor not only becomes liable for the above-referenced employer liabilities but, as well, becomes liable for all acts, errors and omissions of its franchisees under the doctrine of respondeat superior.

The court in Dynamex had before it two individual delivery drivers of a nationwide package and document delivery company who sued on their own behalf (and on behalf of a class of allegedly similarly situated drivers) claiming that defendant Dynamex had misclassified its drivers as independent contractors rather than employees.