The Franchise Memorandum

A federal court in New York has granted a distributor’s motion for summary judgment after concluding that the plaintiffs were independent contractors and therefore not entitled to the protections and rights of federal and state labor laws. Franze v. Bimbo Food Bakeries Distrib., LLC, 2019 WL 2866168 (S.D.N.Y. July 2, 2019). Nicholas Franze and George Schrufer signed distribution agreements with Bimbo Food Bakeries to deliver baked goods along designated routes. Franze and Schrufer both filed suit against Bimbo on the premise that Bimbo was their employer and had violated various obligations under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). Bimbo moved for summary judgment arguing that Franze and Shrufer were independent contractors, not employees, of Bimbo and therefore not entitled to the rights and protections provided by the FLSA and NYLL.

Applying the factors derived from United States v. Silk, 331 U.S. 704 (1947), the court agreed that Franze and Schrufer were independent contractors for purposes of the FLSA because they had a high degree of control over their business operations; had a limited non-compete clause; could sell their distribution rights at any time; “enjoyed independent opportunities for profit and loss” based on their own business skill; possessed independent skills, such as professional driving and business management skills, necessary for their work; and because their role in delivering goods was an important yet small part of Bimbo’s overall business operations. Moreover, having reviewed the totality of circumstances, the court further noted that Franze and Schrufer managed client relations, hired and fired other workers, worked at their own convenience, did not receive fringe benefits and were not on Bimbo’s payroll — all indicators of being independent contractors. The court observed that its analysis and conclusion that Franze and Schrufer were not employees of Bimbo for purposes of the FLSA was sufficient for it to find that they also were not employees for purposes of the NYLL, and therefore granted Bimbo’s motion for summary judgment.