Awuah v. Coverall North America: Is The Franchising Model At Risk?

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A federal court in Massachusetts made national headlines when it compared franchising with a "modified Ponzi scheme." Recent developments (including a subsequent judicial decision and jury verdict) in the case, Awuah, et al. v. Coverall North America, Inc., have shed further light on the potentially problematic ruling.

Interpreting the Massachusetts Independent Contractor Act (M.G.L. c. 149 § 148B), the court initially found that a franchisor (Coverall) of a janitorial business incorrectly classified its Massachusetts franchisees as independent contractors instead of employees. It ruled that Coverall was unable to establish each of the elements of the Act's three-prong test and prove that:

(1) The contractor is free from control and direction in connection with the performance of a service.

(2) The contractor performs a service that is outside the usual course of the employer's business.

(3) The contractor is customarily engaged in an independently established trade or profession.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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