Coverall Precedent Spreads To Other Franchise Cleaning Systems – “Independent Contractors” Found To Be Mere Employees

By William F. Jones

In early June 2012, the United States District Court for Massachusetts issued a summary judgment ruling which expands and applies the precedent in the Coverall employee-independent contractor litigation to yet another large corporate cleaning franchise. 

Jani-King is a large national cleaning franchise system, and it is a competitor of Coverall with similar business operations.  A putative class of plaintiffs (represented by the same plaintiffs’ counsel who participated in the Coverall litigation) filed similar claims against Jani-King alleging misclassification of Jani-King franchisees as independent contractors, rather than employees.

On cross-motions for summary judgment, Chief Judge Mark L. Wolf followed the precedent in Coverall holding that Jani-King’s franchisees were not independent contractors but actually employees under Massachusetts law.  Crucial to the court’s finding was the applicable Massachusetts law which requires an independent contractor to not be conducting the same business as their putative employer.  In the Jani-King case, the court found that Jani-King was engaged in commercial cleaning services, and this was the identical business to which its franchisees were engaged in as well.  Because of this factor, the court, relying on the Coverall precedent, found that the franchisees were employees rather than independent contractors.  The court also appeared to rely on the fact that Jani-King directly handled customer contracting and accounts as well as customer billing for its franchisees as an aspect of why the franchisees were actually employees rather than independent contractors.

Although not entirely unexpected given the similarity between Coverall’s and Jani-King’s businesses, this ruling shows that the impact of the Coverall decision on other franchise systems continues to grow.  Franchise systems should carefully review their business operations to ensure that their business practices do not create unexpected liability for misclassification claims.

Firehouse Subs Gets Burned On Suit For Trademark Infringement

By Bud Culp

Franchisors are well-advised to vigorously protect their brand name, one of a franchisor’s most valuable assets.  However, before filing suit against a franchisee for using a franchisor’s trademark, a franchisor needs to make sure its own intellectual property house is in order, or, as Firehouse Subs recently learned, the lawsuit may backfire.

In Firehouse Restaurant Group, Inc. d/b/a Firehouse Subs v. Scurmont LLC, Case No. 4:09-CV-00618-RBH, Bus. Franchise Guide (CCH) 14,738 (D.S.C. Oct. 17, 2011), Firehouse Subs sued two South Carolina franchisees for trademark infringement for operating two non-franchise restaurants using names incorporating the Firehouse mark.  The franchisees fought fire with fire:  seeking a declaratory judgment that they had not infringed the marks, and filing a counterclaim seeking to cancel Firehouse’s trademark due to its alleged fraud on the U.S. Patent & Trademark Office (USPTO) when Firehouse obtained its mark.  At trial, the jury agreed with the franchisees, finding that the defendants had not infringed Firehouse Subs’ trademarks, and that Firehouse Subs had defrauded the USPTO.  

Firehouse Subs tried to douse the flames, filing a motion for a new trial, or, alternatively, for a new trial.  However, the U.S. District Court for South Carolina upheld the jury verdict.  The court found that the franchisees had presented adequate evidence that Firehouse Subs knew of a restaurant in Florida operating under the name “Firehouse Grill & Pub” at the time it filed its application for its trademark; however, Firehouse had falsely represented to the USPTO that no other party had the right to use the “Firehouse” mark.  Moreover, in light of evidence that Firehouse Subs unsuccessfully sought to obtain a coexistence agreement with the owners of “Firehouse Grill & Pub” (showing that Firehouse Subs was concerned about the possibility of confusion with the Firehouse Subs trademark), the court also affirmed the jury’s award of nearly $250,000 in attorneys’ fees to the franchisees because the jury’s finding of fraud upon the USPTO rendered the case “exceptional” under the Lanham Act.  

Firehouse Subs has appealed the jury’s verdict.