Published — June 1, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Aside form this article “IS FRANCHISEE AN EMPLOYEE OF THE FRANCHISOR?” You may also read: How to protect yourself in franchising your business
A franchisee and a franchisor exist only when there is a franchising agreement. In a related article published in the same platform (please click here to have access), franchising agreement and its types were discussed. For recollection, franchising agreement is a written contract or agreement between two or more parties by which a franchisor grants the franchisee, the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan/system/concept, for a certain consideration. Under Department of Trade and Industry (DTI) Bureau Order 10-24, Series of 2010, a franchisor and a franchisee both refer to a person, individual or a Corporation, duly registered with the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC). Having said that, is the franchisee an employee of the franchisor?
In the case of Ashmor M. Tesoro, et. al., vs. Metro Manila Retreaders, Inc. (Bandag) and/or Northern Luzon Retreaders, Inc. (Bandag) and/or Power Tire and Rubber Corp. (Bandag), G.R. No. 171482, March 12, 2014, the Supreme Court stated the following:
“A franchise agreement is typified by two features: (1) collaboration and (2) a shared interest (i.e., risk) in the success or failure, the gains or losses, of the enterprise. These features indicate that a franchisee is himself engaged in a business concern, albeit in association with another (i.e., the franchisor). It is these features which, despite the presence of some degree of control by the franchisor, negate the existence of an employer-employee relationship. (emphasis ours)
Since a franchise arrangement is designed to serve the business interests of both the franchisor and the franchisee, it is but natural that parameters be established to ensure the viability of the shared enterprise — that is, to ensure the attainment of mutually desired results. Moreover, as it is the franchisee which effectively involves itself with the pre-established enterprise of the franchisor — the benefits it enjoys precisely being that it is relieved of the need to establish an enterprise from scratch and/or that it is able to utilize the goodwill established by the franchisor — it is a matter of course that the franchisee’s activities be in line with standards established by the franchisor.”
However, the same case states that when a supposed franchise agreement does not cater to the mutual interests of the franchisor and the franchisee as collaborating entrepreneurs and instead reveals a lopsided relation where only the franchisor gains from the arrangement, it may not be recognized or accepted by law as a valid franchise agreement. In this case, using the Four Fold Test (please click here to have access on the article relating to four fold test), the franchisee may be considered an employee of the franchisor. In this case, the franchisor now is liable to the franchisee of all the labor standards such as minimum wage, holiday pay, overtime pay, among others.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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