A major case of interest in the franchise industry continues
to wind its way through the federal district court and state courts in
Massachusetts. In Awuah v. Coverall (the “Coverall case”, the core dispute involves whether Coverall franchisees
are actually classified as employees, rather than independent contractors. More explanation of the core dispute is covered
in a prior blog entry, “Franchisees: Independent Contractors or Employees?” by
Bud Culp, posted below.
In the Coverall case, presiding federal district court has now
entered an order defining the damages that the Coverall franchisees who were
misclassified as independent contractors rather than employees will ultimately
receive. The successful plaintiff
franchisees are allowed to recover damages against Coverall which include
refunds of their initial franchise fees, additional business fees and insurance
deductions. Also, the plaintiff
franchisees can recover any unreimbursed chargebacks and interest on late
payment of reimbursed chargebacks.
Most importantly, however, the judge issued an order which
trebled the damages assessed against Coverall.
The court took this action under the prior 2007 version of the
applicable Massachusetts statute which makes treble damages discretionary. The judge’s order trebles damages against
Coverall for successful plaintiff-franchisees dating back to 2006.
It is important to note that revisions to the Massachusetts
statute in 2008 now make the trebling of damages for misclassification
mandatory, rather than discretionary.
This change in the law, along with Coverall case precedent, should
impress upon franchise systems the importance of properly evaluating any
potential exposure they may face on the issue of whether their franchisees can
be classified as employees, rather than independent contractors.
