The Pendulum Swings in Two Massachusetts Franchise Cases

The franchise bar was shocked in 2011. The Massachusetts Supreme Judicial Court announced in Awuah v. Coverall North America, 2011 Mass. LEXIS 734 (Mass. Aug. 31, 2011), that the potential cost of misclassifying workers as franchisees in Massachusetts is significant, and that for a successful claimant, return of franchise fees, advertising fees, counsel fees and treble damages were available. This state-law issue was on certification from the U.S. district court that had the case in chief and the decision was then sent back to the district court for disposition. The aftershocks from the decision resulted in cries for new legislation and a recognition that the franchise method of distribution of products and services was vulnerable. But the announcement that franchising was in peril in Massachusetts was both exaggerated and premature. The Supreme Judicial Court just decided two cases that are instructive for franchisors, in Massachusetts and elsewhere.

Earlier this month, the Massachusetts Supreme Judicial Court issued two back-to-back decisions, both of which are considerable wins for employers and franchisors with franchisees in Massachusetts. First, on April 10, the Supreme Judicial Court decided Meshna v. Constantine Scrivanos, 2015 Mass. LEXIS 161 (Mass. April 10, 2015), in favor of a franchisee that maintains a no-tipping policy. At issue was whether the franchisee’s no-tipping policy violates the Massachusetts Tips Act. The court quickly determined that no language in the Tips Act prohibits an employer from imposing a no-tipping policy and held that an employer does not violate the Tips Act by having such a policy. The employees argued that despite the no-tipping policy, customers still left tips and that the franchisee violated the Tips Act by putting these “tips” in the cash register and/or placing them in cups akin to “take-a-penny, leave-a-penny” containers for customer use. The court held that an employer can be liable for retaining money left by customers, despite a no-tipping policy, but only if it has not clearly communicated its policy. An employer can accomplish clear communication by posting signs, instructing wait staff to convey to customers the existence of the no-tipping policy and by providing employees training on what and when to convey this information.