Risk of requalification of a franchise contract into an employment contract in France
Updated: Feb 12
A franchise contract is a contract by which an independent undertaking which owns a brand and know-how (the franchisor) makes said know-how and brand available to another independent undertaking (the franchisee) for the marketing and sale of products and/or services covered by the contract.
The franchisor provides the franchisee with technical and commercial assistance and often requires the franchisee to commit to exclusivity regarding the brand and product supply.
The franchisee is also obliged to pay a royalty and to follow training courses and events organized by the franchisor.
In principle, the franchisee is an independent contractor that is solely responsible for its own management and assumes the risk of operating its business.
However, the franchisor often reserves the right to impose on the franchisee to comply with certain operating standards, concepts, brand image.
The franchisor also reserves the right to sanction the franchisee's failure to comply with its obligations with respect to the franchise.
When the franchisor's prerogatives have the effect of undermining the franchisee's independence, the latter may claim that the franchise contract should be requalified into an employment contract.
In order to requalify the franchise agreement as an employment contract, the courts look for indications that the franchisee was in a subordinate position with respect to the franchisor.
Among the clues allowing to characterize the existence of a subordination link, French courts retain in particular :
the imposition of resale prices by the franchisor ;
the determination of the working hours of the franchised outlet by the franchisor;
the franchisor's intervention in the hiring of the franchisee's employees and, more generally, the exercise of the employees' power of direction;
In the event that the franchise agreement is requalified as an employment contract, the consequences for the franchisor can be very serious.
The franchisee will be entitled to the payment of the conventional minimum wage for the duration of the contract (up to a maximum of five years), as well as to the payment of overtime and paid vacations, and to the application of the general Social Security system.
The franchisee may also obtain a refund of the entry fee and the royalties paid to the franchisor.
The requalification of the franchise contract as an employment contract also exposes the franchisor to a risk of criminal sanctions, namely, the offence of concealed work.