Abstract
Franchisees outnumber franchisors many times. They perform distinct roles within the franchise network and have many responsibilities and few rights. In this chapter, franchisees are explored as parties to a contract and as consumers in a competitive market. In addition to being a source of funding to the franchisor’s brand, they are an alternative workforce to employees and independent contractors. Thus, they are compared to these workers by reference to the ‘Eleven Factors’ test in the United States and tests applied in Australian law to determine a worker’s status. The relevance of the categorisations in the contexts of consumer protection, goodwill, occupational health and safety and insolvency is introduced.
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Notes
- 1.
Sent to author via email from Franchise Business [eshots@e.franchisebusiness.com.au] 26 May 2012
- 2.
Frazer, Weaven and Wright, Franchising Australia 2008, Griffith University, Question B6 on page 35. And, 4% had ‘other experience’ (e.g. unemployed, parental duties). Forty three per cent had independent business experience immediately prior to becoming a franchisee.
- 3.
Enquette Annuelle sur la Franchise, Résultats 2010
- 4.
NatWest bfa United Kingdom, Franchise Survey(2006) 29
- 5.
IFA 2011 Annual Report, 5
- 6.
National Australia Bank ‘NAB’ Migrant News #8, 5
- 7.
Banque Populaire, Deloitte, Frazer, Weaven and Bodey Franchising Australia 2010, 55 found that 9% of franchisees are under 30 years old, 67% are aged 30–50 years and 24% are over 50 years old
- 8.
Jason Gherke, Why BOMAD funding is critical to franchisee and franchisor growth, 27 March 2012, smartcompany.com.au
- 9.
Virginia Marsh, Entrepreneur enjoys fruits of fast-expanding juice chain – Janine Allis squeezed her way to success from humble beginnings. Financial Times, 24 June 2005, p. 5 quoting Boost’s then chief operating officer, Simon McNamara
- 10.
Shelley Lynn v. Keith Handley, Ivernia, Inc., McDonald’s USA, LLC, Does 1–10 Complaint and Demand for Jury Trial, CV12-02140 Filed Central District of California, March 14, 2012, para 104
- 11.
Frazer and Weaven, Franchising Australia 2004, Griffith University, found that 29% of franchisors provide finance to franchisees, with the most popular being direct finance supplied by the franchisor (59%)
- 12.
Frazer and Weaven, Franchising Australia 2004, found that of the franchisors providing finance in Australia, 4.9% did so through a company related to the franchisor
- 13.
In Australia, 47.1% of franchisees conduct their business from a retail site or kiosk; 29.3% from mobile unit, van or trailer; 26.8% home based (office or garage); 21.8% of franchisees operate from specific commercial sites; and 4% operate from an industrial site, Frazer, Weaven and Wright Franchising Australia 2008, Griffith University, 27
- 14.
Steven Kennedy, ‘The Future of Consumer Policy: Should we Regulate to Protect Homo Economicus?’ (Accord Industry Leaders Briefing, Old Parliament House, Canberra 13 August 2009) 10 citing Stefano Della Vigna, ‘Psychology and Economics: Evidence from the Field’ (2009) 47(2) Journal of Economic Literature315, 316
- 15.
Distilled from Geraint Howells, Iain Ramsay and Thomas Wilhelmsson with David Kraft (eds) Handbook of Research on International Consumer Law(Edward Elgar, 2010) 10–11
- 16.
Trade Practices Act Review Committee Report to the Minister for Business and Consumer Affairs, August 1976, Australian Government Publishing Service, Canberra, 63. (Swanson Report)
- 17.
Bruce Moore (ed), The Australian Oxford Dictionary, (2nd ed, Oxford, 2004) 272
- 18.
Trade Practices Act Review Committee Report to the Minister for Business and Consumer Affairs, August 1976, Australian Government Publishing Service, Canberra, 64. (Swanson Report)
- 19.
Internet service providers did not open the internet to the general public until 1995. History of the internet, http://en.wikipedia.org/wiki/History_of_the_Internet
- 20.
ACCC submission to the Productivity Commission inquiry into Australia’s Consumer policy Framework, June 2007, 146
- 21.
Externalities are defined as third-party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. http://www.tutor2u.net/economics/content/topics/externalities/what_are_externalities.htm
- 22.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003) 72
- 23.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003)
- 24.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003) 72
- 25.
One director of a now failed Australian franchisor went so far as to change his name by deed poll to distance his identity from his past as a solicitor who had been jailed for fraud following misuse of his firm’s trust account
- 26.
[2005] FCA 1212
- 27.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003) 72
- 28.
For example, disputes must ultimately be resolved in Connecticut under all ‘Subway’ franchise agreements
- 29.
Even within Australia, litigation may be between one party based in NSW and the other in Western Australia, three time zones and several hours by air from each other
- 30.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003) 72
- 31.
Michael J Trebilcock, ‘Rethinking Consumer Protection Policy’ in Charles E F Rickett and Thomas G W Telfer (eds), International Perspectives on Consumers’ Access to Justice (2003) 72, XX
- 32.
For example, Subway requires franchisees globally to pursue ultimate remedies in the courts of Connecticut regardless of home jurisdiction
- 33.
Iain Ramsay, ‘Consumer Law, Regulatory Capitalism and the “New Learning” in Regulation’ (2006) 28(1) Sydney Law Review 9, 13
- 34.
For example, in the Australian case Ace Insurance Ltd v. Trifunovski[2011] FCA 1204, five agents, some of whom had been working for Ace Insurance for almost 30 years as ‘agents’, brought a claim against Ace Insurance for unpaid long service and annual leave. The court found that workers were employees
- 35.
Paras 49, 50
- 36.
(1986) 160 CLR 16
- 37.
Brilliant v. Commmissioner of Taxation[2010] AATA 267
- 38.
See Internal Revenue Service, Employer’s Supplemental Tax Guide (Supplement to Publication 15 22 (Circular E), Employer’s Tax Guide) Edition, page 6 for use in 2012. http://www.irs.gov/pub/irs-pdf/p15a.pdf; see also Texas Workforce Commission http://www.twc.state.tx.us/news/efte/independent_contractor_tests.htmlviewed 21 April 2012. IRS Publication 15-A, 2010. Another IRS resource to assist in understanding the independent contractor tests is at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
- 39.
Adapted from Schedule B in ATO TR 2000/14, ATO SR xxx and IRS Eleven Factors
- 40.
‘Behavioral’ is first of three common law rules used in the United States to determine worker’s status as employee or independent contractor. http://www.irs.gov/businesses/small/article/0,,id=179111,00.html; see United States v. Silk 331 U.S. 704 (1947) ‘degree of control’
- 41.
‘Financial’ is second of three common law rules used in the United States to determine worker’s status as employee or independent contractor. See http://www.irs.gov/businesses/small/article/0,,id=179113,00.html
- 42.
‘Relationship’ is third of three common law rules used in the United States to determine worker’s status as employee or independent contractor. See http://www.irs.gov/businesses/small/article/0,,id=179116,00.html
- 43.
Adapted from Schedule B in ATO TR 2000/14, ATO SR xxx. Application of the US guidelines can be seen in United States v. Silk331 U.S. 704 (1947)
- 44.
[1973]
- 45.
(2001) 207 CLR 21, 39 (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) (McHugh and Callinan JJ dissenting). The majority found that a bicycle courier was a common law employee of Vabu and stated that ‘[v]iewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations’. [FN 27 in TR 2005/16]; Hollis v Vabu(2001) 207 CLR 21, 41 and TR 2005/15 para 32, 33
- 46.
[2011] FCA 1204
- 47.
Ace raised the issue of the ability to incorporate being a determining characteristic of an independent contractor. The court was not persuaded. ‘All of the contracts permitted the agents to operate, if they chose, through a corporation. In relation to the sales representatives I regard this contractual opportunity as elusive and there was no evidence that any of these five agents had done so. There was also no evidence that the agents had incorporated at the level of the territory representatives. As sub-regional representatives, Mr Peries and Mr Trifunovski did at certain times conduct their operations through two corporations, Renham Pty Ltd and Heraclea Pty Ltd. One of Combined’s witnesses, Mr Bosnic, also contracted through a corporation as a sub-regional representative. But these arrangements did not suggest that the services which were to be provided were other than those of Mr Peries or Mr Trifunovski or Mr Bosnic. In substance, the corporate vehicle merely allowed the commissions to be received by the companies and for the incurring by them of expenses’ [2011] FCA 1204, para 95
- 48.
331 U.S. 704 (1947)
- 49.
John F Love, McDonald’s: Behind the Arches, (Bantam Books, 1986) 20
- 50.
Bookseller franchisors whose story is told in Chap. 8
- 51.
(1963) 109 CLR 210
- 52.
Jax Franchising Systems Pty Limited v. State Rail Authority (New South Wales); Jax Tyres Pty Limited v. State Rail Authority (New South Wales)[2003] NSWLEC 397
- 53.
Poulet Frais Pty Ltd v. The Silver Fox Company Pty Ltd[2005] FCAFC 131 (Branson, Nicholson and Jacobson JJ)
- 54.
[2005] NSWCA 286
- 55.
McDonald’s Australia Holdings Ltd & Anor v. Industrial Relations Commission of NSW & 2 Ors [2005] NSWCA 286, para 19 (Spigelman CJ, Mason P, Handley JA)
- 56.
Zuijs v. Wirth Bros Pty Ltd(1955) 93 CLR 561; Australian Mutual Provident Society v. Chaplin(1978) 18 ALR 385; Glambed v. FCT(1989) 20 ATR 428; Sgobino v. South Australia(1987) 46 SASR 292; Re Clothing Trades Award 1982(1987) 19 IR 416; City Motors (1981) Pty Ltd v. Commissioner of State Taxation (WA)(1993) 26 ATR 291; Samrani v. Roads and Traffic Authority of New South Wales(1994) Aust Torts Reports ¶81–314; Climaze Holdings Pty Ltd v. Dyson(1995) 13 WAR 487; Australian Building Construction Employees and Building Labourers Federation (WA Branch) v. Pacesetter Homes Pty Ltd(1994) 56 IR 51; Humberstone v. Northern Timber Mills(1949) 79 CLR 389; Stevens v. Brodribb Sawmilling Co Pty Ltd(1986) 160 CLR 16; Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance[1968] 2 QB 497 (list sourced from CCH)
- 57.
Copy of franchise agreement in author’s possession
- 58.
McDonald’s Australia Holdings Ltd & Anor v. Industrial Relations Commission of NSW & 2 Ors[2005] NSWCA 286, para 23 of Judgment of Spigelman CJ
- 59.
Hadfield, ‘Problematic Relations: Franchising and the Law of Incomplete Contracts’, (1990) 42 Stanford Law Review927, 943
- 60.
(1998) VG 438 of 1993
- 61.
Kaytonruby Pty Ltd & Ors v Glev Franchisees Pty Ltd & Ors(1998) VG 438 of 1993, para 24
- 62.
[2003] NSWLEC 397
- 63.
Jax Franchise Agreement, cl 9.6
- 64.
This agreement has possibly been superseded as MBE was taken over by UPS, but it is not possible to be sure because of the absence of a franchise agreement database in Australia.
- 65.
[2000] FCA 1365
- 66.
[2000] VSC 310
- 67.
Far Horizons Pty Ltd v McDonald’s Australia Ltd[2000] VSC 310, para 5(f)
- 68.
Far Horizons Pty Ltd v. McDonald’s Australia Ltd[2000] VSC 310, para 32
- 69.
Ilan Alon, Matthew C Mitchell and J Mark Munoz, ‘Microfranchising in less developed countries’ in Ilan Alon (ed) Franchising Globally. Innovation, Learning and Imitation, (Palgrave Macmillan, 2010) 164
- 70.
Derek Parker, ‘Counting on His Chickens’, The Australian (Sydney), 24 June 2005
- 71.
Paras 49, 50
- 72.
[2004] SASC 288
- 73.
460 Mass. 484 (2011)
- 74.
Pius Awuah & Othersv. Coverall North America, Inc.SJC-10829. May 3, 2011. – August 31, 2011
- 75.
Janet Sparks, Coverall Doomed in Disguising Workers as Owners, 24 February 2012, http://www.bluemaumau.org/11303/coverall_doomed_efforts_disguise_employees_owners
- 76.
Frazer, Weaven and Wright, Franchising Australia 2008, above n 7, 23 report the initial terms of the current franchise agreement of the 264 franchisors that responded ranged from 1 to 50 years. Of these, 67% of franchisees have an initial term of 5 years
- 77.
The Cheesecake Shop v. A & A Shah Enterprises[2004] NSWSC 625
- 78.
The Cheesecake Shop v. A & A Shah Enterprises[2004] NSWSC 625, para 36
- 79.
Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd and ors (1991) 28 NSWLR 443 decision of Kirby P, Mahoney and Handley JJA
- 80.
Majik Markets Pty Ltd v Brake and Service Centre Drummoyne Pty Ltd and ors (1991) 28 NSWLR 443, 465
- 81.
Far Horizons Pty Ltd v. McDonald’s Australia Ltd[2000] VSC 310, para 42
- 82.
[2012] FCA 235, para 15
- 83.
Australia’s Competition and Consumer Act 2010(Cth) provides avenues for victims of misleading and deceptive or unconscionable conduct to seek redress
- 84.
Australian Taxation Office, PCD 8 Capital Gains: Goodwill (1995). Goodwill is also discussed by Ian Tregoning in ‘Goodwill in the Context of Licensing, Leasing and Franchising: Some Considerations’ (2009) 37 Australian Business Law Review296
- 85.
WorkCover Authority of New South Wales (Insector Petar Ankucic) v McDonald’s Australia Limited and anor[2000] NSWIRComm 277 and Workcover Authority of NSW (Inspector Ankucic) v McDonald’s Australia Limited and anor[2000] NSWIRComm 1123
- 86.
[2012] NSWSC 381, Rotham J. KFC has announced its intention to appeal. In the meantime, the franchisor is careful not to draw attention to the fact that the tragedy befell a customer who had bought chicken at a franchisor-owned outlet. http://www.kfc.com.au/about-us/news-kfc-statement-in-defence-vs-samaan.asp
- 87.
[2012] NSWSC 381, para 250
- 88.
A term coined by investor Warren Buffett referring to a situation in which high-ranking insiders use their own money to buy stock in the company they are running. Read more: http://www.investopedia.com/terms/s/skininthegame.asp#ixzz1yghGKREE
- 89.
Elizabeth Spencer, ‘Standard Form and Relational Aspects of Franchise Contracts’ (Paper presented at the 20th International Society of Franchising Conference, Palm Springs, California, 24–26 February 2006) 21, quoting Silvana Sciarra, ‘Franchising and Contract of Employment: Notes on a Still Impossible Assimilation’ in Christian Joerges (ed), Franchising and the Law: Theoretical and Comparative Approaches in Europe and the United States (1996) in Journal of Institutional & Theoretical Economics, 152, 297–324
- 90.
Robert L Purvin Jr, The franchise Fraud, How to protect yourself before and after you invest. 1994, 76
- 91.
Robert L Purvin Jr, The franchise Fraud, How to protect yourself before and after you invest. 1994, 76
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Buchan, J. (2013). The Franchisee. In: Franchisees as Consumers. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-5614-8_4
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