Is There a Basis for Equating Franchisees with Employees in Priority Ranking on the Insolvency of Franchisors?

Abstract

This paper presents the Australian courts' definitions of employee and independent contractor. It highlights where the franchisee fits, being indistinguishable at times from an employee and at other times from an independent contractor. If the franchisor becomes insolvent, the failure of the law to keep pace with the franchise business model is bought into sharp focus. Whereas the employee and the independent contractor have clearly understood rights, enshrined in statute, the franchisee has no specific rights if the franchisor becomes insolvent. At its most vulnerable time, the franchisee is categorized as an asset or a liability in the insolvent estate. The author queries whether it would be appropriate to accord franchisees specific status in the franchisor's insolvency; like that enjoyed by employees.

Keywords: franchisor, insolvency, franchisee rights, employee rights, bankrupt, asset, liability, comparison of employees, independent contractors and franchisees, Australia

JEL Classification: G33, K20, M55