CTL S.A VS MATIAS CASTILLO vs CASANUOVA S.A. AND OTHERS C on / bankruptcy -march 22 1918-.
Mr Castillo was labor creditor from Casanuova franchisee and he requested the extension of bankruptcy on the basis of patrimonial confusion under law 24.522 (a, 161) between CTL the bankrupted and restaurant partners A,A franchisors, plus the two other franchisees Casanuova S:A and Pescaglia S.A.
The Court found that franchisees did not pay canon for royalties for publicity, but such treatment were not given to other franchisees.
Both franchisor and Franchisees Pescaglia and Casanuova had their accounting books in the same domicile.
Both franchisor and franchisees had common persons running the companies and common administrators.
These stores operated by CTL S.A. were also operated later by franchisees ND. They failed to follow the procedure to authorize the transfer of assets required by law 11867 (governing the transfer of commercial assets).
Finally CTL did not register in his books any income for the sale of assets transferred to Pescaglia.
With such background the commercial judge declared the extension of the bankruptcy the Chamber D of the commercial Court Of Appeals confirm the judgement of the first instance Court since the group of companies clearly infringed the bankruptcy law and did fulfill the requirements to operate independently the franchise contract.
The second leading case for franchising is when labor law applies.
For years labor courts have claimed that franchise law is not applicable because section 30 of labor law, as special legislation rules the matter since it is a special law versus a general commercial law which cannot supersede special labor laws.
It does exist a sharp difference between labor views on the issue of labor liability contending that franchisor is jointly liable with franchisee again actions to collect labor unpaid obligations owed by franchisee to its employees including social security charges for unpaid obligations of franchisee under section 30 of labor law Code when franchisor assign partially or totally its principal business to franchisee or contract or subcontract or delegation of its business to a third party.
Whereas the franchise commercial regulation under section 20 of the Civil and Commercial Code clearly establish that franchisor is not liable for such labor debts nor it has legal labor relation with franchisor without prejudice to the application of labor fraud regulations.
Many labor law judicial decisions adopted the labor law solution under section 30 labor Code by a majority of the labor Court Of Appeals except for Chamber 10 (of the CNAT) in re R.LG et alter vs Matias Bulker, Lafrank S.A and others for dismissal on 14/07/2015 where rejected the labor claim on grounds that there was neither assignment of franchisor main activity nor the lease or sublease of franchisor establishment to franchisee.
Same decision was reached in Lambardi Santiago vs Dia Argentina on dismissal Decision dated 13/07/18 for same line of reasoning and once more Chamber X of the Labor Chamber of Appeals (CNAT) in re Nigrelli Ezequiel vs Dia Argentina dossier N 1707/2017 registered 12//5/2021 updated Its doctrine precising that it does not result reasonable to conclude that the existence of a franchise, under a contract of cooperation between independent companies under the use of a trademark, the continuance of a system of distribution, under a method or system developed by franchisor through a system of technical assistance and the payment of a royalty with a community of interests and the non existence of an assignment of the establishment nor a contracting or subcontracting of work or services of franchisor sufficient to make responsible Dia Argentina and apply section 30 of LNAT.
This decision has been well received by the AAMF and its members.
A member of the labor of the AAMF legal group committee, Ana Carolina Piatti, an expert and seasoned lawyer has prepared and written the following advice to avoid the possibility of labor fraud by claimants, which I think they constitute precise guidelines to avoid taking wrong decisions as follows:
Any of the parties to the franchise contract should be entrepreneurs or companies really independent, assuming each one the risks of the business.
There should be no assignment or sub contracting to make works or services that belong to the principal activity of franchisor.
Franchisor should not have share participation that directly or indirectly give control of the franchisee business.
The members of the Board of both companies should not be common.
There should not be patrimonial confusion between franchisor and franchisee.
Franchisee should act in his own name and account and he should not act as representative of a franchisor, who is not obliged.
Each one of the parties must carry different company and labor documentation.
Each party must have a different company address.
Franchisor cannot give orders or instructions to franchisee personnel.
Franchisee employees must be correctly registered in franchisee books insofar the initial working day, remuneration, labor working days and its labor category.
Hence, if the above guidelines are completed in the normal life, the joint liability covered under section 30/31, LCT should not be extended to franchisor.
Franchisee must fulfill the labor and social security obligations of its workers.
Hence, to the best of the present knowledge, if the above guidelines are in reality applied the joint liability covered under section 3031of LCT should not be extended to franchisor with respect of the labor and social security obligations of franchisee workers.
Osvaldo Marzorati, IDI Country Expert for Argentina