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ARGENTINA: Recent Argentine case on labour liability of a local franchising company for dismissal of employee working for franchisee.

Mallo Fondevila Emiliano F. vs. Cichero Fernando J. and others on labour dismissal - Decision of the Court of Labour Appeals chamber IX N° 55832 - Buenos Aires, September 29, 2019.

Osvaldo Jorge MARZORATI - 17.12.19
Country expert

FACTS. The Judge of first instance considered that between the plaintiff and the individual co-defendant Cichero and Renosto a clandestine labour relation was maintained between them where plaintiff worked as Chief head of the kitchen of the restaurant operated by the co-defendants and condemned both co-defendants (the franchisees), but rejected the claim of solidarity against GP ARGENTINA (the franchisor), who granted a franchise agreement to both individual Cichero and Renosto to operate such restaurant (the franchise).

Plaintiff filed an appeal to the Court of Appeals, who confirmed the condemn against the franchisee but revoked the judgement against franchisor, declaring that franchisor was jointly liable for payment of the indemnity for dismissal and the Court costs in both instances, including the fees for counsel of plaintiff, despite that the franchise agreement was operated according to the manual prepared by franchisor and established that only the franchisee was solely liable before third parties for the operation of the establishment.

The Court of Appeals found that the witnesses in the lawsuit, all employees of franchisee, declared that franchisor’s personnel visit the establishment, control the activity and give guidelines on how the work was supposed to be done. In such fashion the Court reasoned that the activity of franchisee, which employed claimant, was perfectly integrated and aligned with the activity of franchisor and such result allowed to presume that such activity was the specific and normal activity of franchisor, which made applicable section 30 of Labour Law (LCT), that allows the joint liability of anyone who is assigned such activity or carries or is subcontracted to perform the same activity of contractor, concluding that the franchise agreement excluding such liability from franchisor could not be validly invoked against the plaintiff, as declared by the same chamber in judgements Quiroga vs. Britello et alter dated 16/ 07/19 - Dossier 46528 /2016 - and Samaniego vs Centineo et alter on dismissal N 27440 dated 16/06/12.

Further the Court of appeals Ch. IX stated that the provisions related to the franchise agreement (sections 1512 to 1524) established under the new Civil and Commercial Code (CCC) were not applicable to the case, since the facts debated in this case took place before such new CCC was enacted.

Section 30 of LCT provides that whoever assigns in whole or in part to another party the establishment or business registered in the name of assignor, or contract or subcontract works or services that belong to the normal and specific activity proper of such establishment, within or outside of such establishment, are jointly liable for the unpaid salaries and social security obligations for employees of assignee or working under contractor or subcontractor.

The CCC Code came into effect on August 1, 2016. Section 1520 of such code provides that franchisee employees are not deemed personnel of franchisor except in case of fraud. Would the case have been decided differently, if the original case involved a factual situation or relationship after August 1, 2016? This issue has no answer yet. The Court ignored whether or not such new provisions are mandatory and should have been considered in this case, that followed the line of precedents, before the CCC was enacted to consider the protection of the worker as a priority or, even worse, if the CCC could not repeal a mandatory provision of the Labour Law still into effect, as some labour favourable doctrine has suggested. In short, except cases of fraud against the employee of franchisee, franchisor is not liable for the unpaid salaries and social benefits of such employee. No wonder is that in any new case under the CCC labour lawyers shall claim that there has been fraud against the employee. It is up to the courts to investigate whether such fraud existed to extend joint liability to the franchisor. So far, except the old doctrine from the Supreme Court in re Rodriguez vs Embotelladora et alter, which declared back in 1994 that the contracts of concession, distribution and franchising were not reached by section 30 of Labour Law and revoked a Court of Appeals decision as arbitrary, on grounds that it was based on a dogmatic opinion, the Labour Courts changed their doctrine (despite that the ruling is only binding for the case in which is dictated); but, when the members of such supreme Tribunal resigned or some were impeached, the Labour Courts insisted again on their prior position until these days, in which a majority of the chambers of the Labour Courts of Appeals maintain this position but a minority of the remaining chambers made section 30 non applicable to the extent that the control made by franchisor over franchisee is based on the supervision of the use of the trademark, except for franchise agreements .

Until very recently the following Supreme Courts members were not presented with another decision of the Courts of Appeals favourable to the application of labour law to franchise agreements, since the parties did not choose to follow the costs and time of pursuing the claim at the Court. But on August 29, 2019 the Supreme Court revoked as arbitrary the decision of the Superior Court of Justice of Rio negro- a province or political subdivision of our country, which is a federal country -, that denied an extraordinary appeal in a commercial distribution case where an employee of distributor was fired and the distributor and the editorial Rio negro S.A. that had appointed the distributor were sued. The Supreme Court considered that the activity of distributor to assemble the pages of the newspaper and send them for daily sale was not the normal activity of the Editorial (to elaborate and produce the daily journal) and revoked the decision to make such editorial liable for the dismissal judgement claimed by an employee of distributor, pointing that it was not encompassed under section 30 of LCT, since the Editorial delivered to distributor a product finished and such was the activity of the Editor. The Court ruled that the interpretation made by the Superior Tribunal of Rio Negro was a disproportionate extension of section 30 of LCT which exceeded and distorted the purposes of section 30 of the law, creating an unacceptable interpretation of the law that should be revoked.

Unfortunately the precedent is applicable only for a distribution case and did not involve a franchise agreement. The possibility to support such an interpretation depends on the facts of the actual case, where the sole chance of franchisor is that all his activity as a franchisor is based on his trademark protection know how and assistance, that are the core of a franchise relationship.

 

Osvaldo Marzorati, IDI Country Expert for Argentina

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