From JDSupra, Richard Reibstein discusses recent cases in which franchisees allege that the franchisor misclassified them as independent contractors instead of employees. Richard writes:
We report below on three new lawsuits filed last month for independent contractor (IC) misclassification. In the first, an automotive repair tool company operating on a franchise business model was sued by mobile tool dealers who signed franchise agreements classifying them as ICs. The franchise business model has been a frequent subject of IC misclassification cases under state and federal wage and hour laws, as we have noted in a number of our blog posts. While one well-known franchisor successfully defeated a state IC misclassification case in Massachusetts, most of these class action lawsuits have resulted in unfavorable results for franchisors including costly settlements. But franchise arrangements can be structured in a manner that maximizes compliance with state and federal labor and employment laws. Franchisors can use a process such as IC Diagnostics (TM) to structure, document, and implement franchise arrangements in a manner that enhances IC compliance in a customized and sustainable manner — in much the same way that other companies can when utilizing an IC business model. Use of a standard franchise agreement designed for company-to-company relationships is not well suited from an IC compliance standpoint for use with franchisees that own and operate a one-person business, whether as a sole proprietor, limited liability company, or corporation.
In the Courts (3 cases)
MOBILE TOOL FRANCHISOR SUED IN CLASS ACTION LAWSUIT ALLEGING IC MISCLASSIFICATION. A mobile tool dealer that signed a franchise agreement with an automotive repair tools company commenced a class action lawsuit in a federal court in California alleging that the company misclassified him and other franchisees as ICs instead of employees. The dealer, who signed a “Dealer Franchise Agreement,” claims that the company violated California’s Labor Code and wage orders by failing to reimburse him and other dealers for their business expenses or pay for overtime hours. The court complaint states that the company’s website provides that it is the longest running mobile tool company selling direct to professional technicians across the country via mobile tool franchise owners. The complaint further asserts that the company requires the dealer franchisees to wear company-approved uniforms, undergo extensive training, participate in ride-alongs, attend meetings and other company-sponsored events, and pay for the costs of their fuel consumption, uniforms, truck payments, and insurance, and broadly reserves the right to terminate its relationship with the dealers. The complaint further alleges that the arbitration provisions of the franchise agreement are unenforceable in California. Florea v. The Cornwell Quality Tools Company, No. 5:25-cv-03343 (C.D. Cal. Dec. 11, 2025).