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Are Franchisors 'Employers'?

By Glenn Plattner and Kristy A. Murphy
December 31, 2014

Part One of a Two-Part Article

Franchising began in the mid-1800's with the Singer sewing machine, but became increasingly popular in the United States in the 1950's when brands such as Kentucky Fried Chicken (1956), Holiday Inn (1957) and International House of Pancakes (1958), among others, began franchising. Today, franchised businesses employ millions of people, have payrolls in the billions of dollars and generate over a trillion dollars in total sales. U.S. Census Bureau, “Census Bureau's First Release of Comprehensive Franchise Data” (Sept. 14, 2010).

The typical franchise model allows the franchisee to use the franchisor's trademark and marketing plan in exchange for the franchisee paying a franchise fee for the right to operate the franchised business. See, People v. Kline, 110 Cal.App.3d 587 (2014). The franchisee pays most of the operational costs for running the business and retains the gross sales. In most franchised systems, the franchisee is required to pay the franchisor a royalty and marketing fee, on a monthly basis, calculated as a percentage of the gross sales.

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