Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Home care franchisees seek rescission and damages for false representations on independent contractor status of caregivers, (Apr 15, 2014)

By Linda O’Brien, J.D., LL.M.

In an action for rescission and damages, operators of non-medical home care referral franchises allege that their franchisor made false and misleading representations regarding the legality of the independent contractor status of the referred caregivers prior to the execution of the franchise agreements, according to a complaint filed in the federal district court of Oakland, California (Andersen v. Griswold International, LLC, April 14, 2014).

Non-medical home care company, Griswold International, LLC franchises businesses to act as referral sources for clients on the independent contractor (IC) business model. The franchisees identify caregiver candidates and work with the client to develop a service plan. Franchisees regularly check in with the client, make home visits, and receive fees for the service of referring the caregiver and for ongoing services. The client acts as the contractor for the independent contractor caregiver.

The complaint alleged that, beginning in 2009, Griswold sold franchises for the operation of Griswold Home Care businesses. In connection with the sale of the franchises, Griswold represented that (1) the Griswold System was a proven system; (2) franchise owners will receive full support with licensing and state specific compliance paperwork; (3) the caregivers were validated as self-employed; (4) Griswold operated under two federal “safe harbors” governing the IC model; (5) Griswold was competent to provide guidance; and (6) competitor misinformation was inaccurate about the issues with the IC model. Based on the Griswold’s representations, the franchisees entered into the franchise agreements to become Griswold franchises and paid substantial franchise fees.

According to the complaint, Griswold specifically perpetuated during franchisee training the representations that the IC model withstood any scrutiny from various state and local labor and workers compensation organizations. It also provided franchisees with forms to be signed by caregivers and information documents to be given to clients that the caregivers were independent contractors.

The franchisees began operating their businesses only to discover in 2013 that the representations made by Griswold were false, incomplete, or misleading. Specifically, the IC model was considered risky and unlawful in California; Griswold had no team of experts on non-medical home care; Griswold did not provide support on state specific compliance; the federal “safe harbors” had no bearing on state law; the misclassification of employees as independent contractors was a substantial issue; and Griswold knew or should have known that the American Board of Home Care long disfavored the IC model.

In 2013, the California legislature passed legislation that applied to non-medical home care workers. The complaint alleged that Griswold contacted the franchisees, advising them of the passage of the law, and stated that the law may require the caregivers to be classified as employees. In February 2014, Griswold mandated that its franchises become employment agencies and abandon the IC model. As a result of the misrepresentations and breaches of contract, the franchisees must convert their businesses to employment agencies and treat caregivers as employees, which constitutes a material modification of the franchise agreements. Due to the challenges embodied in the state law, the subject matter of the franchise agreements has been destroyed and the franchisees have the right to rescind those agreements, the complaint charged.

The franchisees assert claims of fraud, negligent misrepresentation, fraudulent concealment, breach of contract and for violations of the California Franchise Investment Law and Franchise Relations Act. The action seeks declaratory relief, rescission, damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 4:14-cv-01720-DMR.

Attorneys: Ronald B. Bass (The Law Offices of Ronald B. Bass) and W. Michael Garner (W. Michael Garner, P.A.) for Mark Andersen.

Companies: MHA Family Holdings, Inc.; James Carlson LLC; M&E Family Care, LLC; Hinders Home Care Inc.; CS Family Ventures Inc. CSAB Management, Inc.; South Bay Care, LLC; The KPeters Group; Ledgewood Enterprise Inc. Thelen Enterprise, Inc.; Griswold International, LLC

News: FranchisingDistribution CaliforniaNews