Between Salaried and Independent Workers: A Legal and Economic Analysis of the Franchisee-Franchisor Relationship
The franchise contract allows franchisees to benefit from franchisors’ knowledge in return for their financial investment. However, the franchise contract entails much more than the simple transmission of a recipe. It involves thorough assistance from the franchisor to the franchisee. Hence, could this contractual relationship be compared to the employment relationship ? This article will examine how the franchise relationship is molded by both the legal subordination induced by the franchise contract and the superior economic power of the franchisor. This article will rely on a socio-legal analysis of Quebec jurisprudence (1994-2016), and on economic theory, in order to understand the factors of subordination and of economic power incorporated in the franchise relationship. The analysis exposes how the franchise relationship comprises strong components of subordination and inequality of economic power for the franchisee, both of which are as real as in the employment relationship, even though they are not formally instituted by the franchise contract. Three solutions are considered. One of these solutions would be to allow the characterization of a franchise contract into an employment contract. Although some foreign jurisdictions have followed this path, Quebec’s jurisprudence is not inclined to do so. A second solution would be to enact protective legislation for franchisees in order to decrease the informational asymmetry between franchisor and franchisee, and to specify the qualities of the franchise concept. A last solution would entail the recognition of the economic inequality between the franchisor and the franchisee. Such a solution could mark a departure point for a more general legal framework of «dependent economic relationship law» capable of understanding the numerous relationships of entrepreneurial dependency that exist, of which the franchise relationship is but one example.