In which situations can a Franchisee be considered as an employee of the Franchisor?

cropped logo icono

An employment agreement is an arrangement in which a person (employee) is compelled to provide a service to other person or entity (employer), under the constant subordination of the latter, and who receives remuneration for his services rendered (salary). The employment agreement can be verbal or written.

An employment agreement is valid independently of the nature of the relationship, when the following elements are present: (i) the personal activity of the employee; (ii) the subordination of the employee, faculty that allows the employer to demand the fulfillment of orders at any time, regarding the form, time or amount of duties to perform and impose the measures related with this, and; (iii) the payment of a remuneration or salary.

Accordingly, considering that one of the most important elements of the Franchise Agreement is the payment from the Franchisor to the Franchisee to have the right to receive Specialized Knowledge and a Trademark License, one of the essential elements of the employment agreement is not present, given that the payment made by the person who runs the business, Franchisee, to the person who provides the know-how, Franchiser.

In the same way, the excessive limitation of the Franchisee’s liberty to organize the business, by the Franchisor, can be justified as a logic consequence of the trademark license conceded by the trademark owner and not because the Franchisee provides a personal service to the Franchiser.

Thus, in a Franchise Agreement it is obvious that the use of the Trademark implies some limitations to the Franchisee due to a commercial need. Therefore, it is very unlikely, if not impossible, that a Franchise Agreement can be categorized as a labor relationship.

In which situations can a Franchisee be considered as an employee of the Franchisor?