Requalification of the franchise contract into an employment contract

The franchise contract is the contract by which a trader (the franchisor) makes available to another independent trader (the franchisee) his know-how, and grants him the right to use his customer rallying signs for the marketing of the products and/or services subject of the contract, by providing him with technical and commercial assistance throughout the duration of the contract, the franchisee paying a fee.

The franchisee is an independent merchant. As such, he assumes the management of his company and assumes alone the risks related to the operation of his business. However, the franchise agreement implies that the franchisor may require the franchisee to comply with operating standards of the business concept, monitor compliance with these standards and the brand image by the franchisee and sanction non-compliance with these standards.

However, the franchisor must take care not to undermine the franchisee’s independence. Indeed, in the presence of consistent evidence to characterize the existence of a relationship of legal subordination, there is a risk of seeing the franchise contract reclassified as an employment contract.

Among the indicators making it possible to characterize the existence of a relationship of subordination, the case law retains in particular:

  • the fixing of resale prices by the franchisor;

    • fixing

  • the hours of the franchised point of sale by the franchisor;
  • the intervention of the franchisor for the hiring of employees of the franchisee and more generally the exercise of the management power of the employees;
  • etc…

The consequences of reclassifying the franchise contract as an employment contract are serious. In the event of requalification, the franchisee is entitled to the payment of the conventional minimum wage over the duration of the contract (up to a maximum of five years), as well as to the payment of overtime and paid leave, and to the application of the general Social Security scheme. The franchisee may also obtain a refund of the entry fee. There is also a criminal risk that is related to the crime of undeclared work that can be created in this case.

You can watch a video here about re-qualifying a franchise agreement.

To avoid this risk of requalification, the provisions of the franchise agreement must respect the franchisee’s independence with regard to the organization of their work. The franchisor has the opportunity to strictly supervise the use of its know-how and its brand. On the other hand, it must not set the conditions for the daily organization of the work of the franchisee.