Under federal law, any company, charging a fee for starting a business, providing significant assistance to start and run that business, and allowing the use of their trademark, such as their name on a vending machine is selling a franchise. Any person buying that business is under the law a franchisee. Accidental franchisees are those people who did not know they were buying a franchise and did not intend to be a franchisee. Purposeful franchisees have received a lengthy franchise disclosure document (FDD) and have had the opportunity to determine if they want to legally become a franchisee and take on all of the obligations that come with that. Accidental franchisees are not given FDD’s and become franchisees without intending to do so.
Accidental franchisees must follow all federal employer laws prescribed for franchisees – whether they ever have employees or not. More importantly many states have their own employer and other legal requirements that all franchisees must follow. These may include:
- Applying for state unemployment insurance
- Applying for workman’s compensation insurance
- Obtaining Employment Practice Liability Insurance
- Applying for health insurance
- Obtaining liability insurance
- Completing applicable state tax forms for franchisees
- Completing state-required employer training on I-9’s, W-4’s and other employee related items
The bottom line is that as a franchisee you now have to jump through many hoops to meet state legal and employee requirements – for employees you don’t even have.
There are fines and other penalties for franchisees not following state and federal laws. No accommodation is made for accidental franchisees and they are liable for these fines and other penalties dating back to the day they became a franchisee – even though they did not know they had become a franchisee.
What if the healthy vending company insists they are not a franchise?
Companies do not get to decide which laws they want to follow. It is clear that a company is a franchise if they do all three of these things:
- Charge a fee to start the business.
- Provide significant assistance like finding locations and providing training and support.
- Put their name on the machines thereby associating your business with their name.
Several states have issued Cease and Desist orders to healthy vending companies verifying they are franchises. We can provide links to these orders and to other resources upon request.
Starting a business with a company designated as a franchise makes you a franchisee – whether the company agrees with the franchise designation or not.
If you feel a company may be selling franchises but they say they are not we recommend you contact an attorney prior to considering making an investment. You do not want to become an Accidental Franchisee.