The Franchise Memorandum

A state appellate court has reinstated a decision of the Board of Industrial Insurance Appeals that Jan-Pro cleaning franchisees without employees or subordinates were considered covered workers under the Washington Industrial Insurance Act. Dept. of Labor and Indus. v. Lyons Enters., Inc., 2015 WL 459409 (Wash. Ct. App. Feb. 3, 2015). The Act requires employers to report and pay workers compensation premiums for covered workers. Lyons Enterprises, the master franchisee of Jan-Pro cleaning franchises, argued that franchisees should not be considered workers under the Act, noting that franchisees are organized as independent businesses that can and do hire their own employees. In other words, the franchise agreements between Lyons and the franchisees should not be considered contracts for personal labor.

The court determined, however, the franchisor retained responsibility under the franchise agreements to deal with clients on behalf of its franchisees. As a result, the court found that any franchisee working alone is "necessarily exerting personal labor" to provide the cleaning services, but franchisees with subordinates are "necessarily contributing more to the contract than his or her own personal labor." In addition, the franchisees could not be considered independently established businesses, as, pursuant to the franchise agreements, they would be required to terminate the operation of their cleaning businesses at the end of the franchise relationship.