Franchising a business can be a great opportunity for Californians to open a business while receiving corporate support in both the short and long-term. Startup costs for a well-known brand may seem steep, but they can be less than the cost of building a business to such a level from the ground up. That’s why franchising opportunities are so widespread and, oftentimes, successful.
Yet, just with any other business ventures, franchising has its own risks. One of them deals with worker classification. How your workers are classified can have a tremendous impact on your business operations, as it can dictate your ability to control your workers and their work product, as well as what you’ll have to provide in the way of tax payments and benefits. Misclassification can also lead to wage and hour litigation, perhaps leaving you at risk of a massive judgment. This is because the law allows employees to obtain minimum wage and overtime protection, whereas independent contractors do not enjoy those protections.
California’s worker classification law
Under current state law, oftentimes referred to as the ABC law, a three-prong test is utilized to determine whether a worker is an employee or an independent contractor. Those factors are:
- The amount of control and direction that the employer retains over the worker
- How the work aligns with the normal type of work performed by the employer
- Whether the worker customarily engages in independent work of a similar sort
Therefore, when assessing worker classification, a court may consider how work is assigned, how quality is controlled, and how and when the worker is allowed to perform his or her duties. The more flexibility and the less control, the more likely it is that a worker will be classified as an independent contractor rather than an employee.
Exemptions to California’s ABC law
Not everyone is subject to this classification test. Musicians, freelance journalists, and even translators are free to work as independent contractors regardless of the how their position might look under the ABC analysis. A recent case involving convenience chain 7-Eleven addressed this issue.
There, workers at four 7-Eleven franchise locations argued that they were employees of the business rather than independent contractors, and that they were therefore entitled to additional compensation for wages and benefits that weren’t provided to them. The court found that the workers were independent contractors under state law, holding that 7-Eleven lacked the requisite control and direction needed to establish and employer-employee relationship. The court gave great consideration to the plaintiffs’ own statements that they didn’t see themselves as employees, they often didn’t follow 7-Eleven suggestions and recommendations, and that they were free to hire their own employees as they saw fit.
While the court certainly looked at the amount of control that 7-Eleven possessed over the franchisors, it also looked at a number of other factors not identified in California’s ABC law. This is because this situation was found to be exempt from the ABC law given the industry involved. So, while this case may have limited implications for California businesses, it highlights the importance of understanding the nuances of the law and how you might be able to use them to your advantage
Competently navigate your business law issue
There are a whole host of business law issues that you might face as you seek to expand your operations and increase profits. Any one of them, if mishandled, can have a tremendous impact on your financial stability and your business’s reputation. Therefore, you have to be prepared to competently address these issues as they come up. That may mean seeking assistance from a legal professional who is readily able to help you craft the arguments needed to support and protect your position.