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A Massachusetts court presented Coverall with a bill this month for $3 million to pay back franchisee fees and other expenses to over 100 workers wrongfully disguised as franchisees.
A Forbes magazine report tells that at the heart of the case is a controversy over whether some franchise owners aren’t franchisees at all, but rather employees who have had to pay fees for the right to have their job.
Attorney for the employees Shannon Liss-Riordan of Lichten & Liss-Riordan said the damages calculation was completed the week of May 11. The report stated,
Instead of funds flowing from franchise units up to the corporate parent in the form of royalties, “money flows downhill.”
Liss-Riordan explained the case saying,
. . . Coverall finds the clients, assigns them to franchisees, negotiates contracts, bills and collects payments — and then pays the franchisee their share. This structure led the court to conclude the relationship is really that of employer and employee.
Coverall plans to appeal the Massachusetts decision, still claiming that its franchisees are independent business owners, not employees. Liss-Riordan states you can bet on there being more cases like this one.