Appeal of an SBA determination finding that a concern was not a small business is denied. The appellant was a franchisee. The franchise agreement gave the franchisor control over the appellant’s payroll, billing, and cash flow. Due to the franchisor’s control over crucial business functions, the appellant was affiliated with the franchisor and thus not a small business.
Spherion Staffing Services was temporary employment agency operating under a franchise agreement with Spherion Staffing, LLC. Spherion applied to the Small Business Administration for HUBZone status. But the HUBZone office was concerned that Spherion was affiliated with its franchisor due to control the franchisor had under the franchise agreement.
The SBA Area Office determined that Spherion was not a small business due to franchisor's control. Under the franchise agreement, the franchisor owned all of Spherion’s temporary staff and paid all their wages. Additionally, the franchisor owned all the customer accounts, and it handled all the invoicing and billing. Moreover, the franchise agreement restricted Spherion’s ability to do business with certain clients. All in all, the Area Office found, the franchise agreement gave the franchisor excessive control over Spherion.
Spherion appealed the size determination to SBA’s Office of Hearing and Appeals. But OHA agreed with the Area Office. OHA found that Spherion’s appeal was very similar to two other appeals—Garvin Enter. Inc., SBA No. SIZ-4544 (2003) and ETI Professional, Inc., SBA No. SIX-4603 (2004)—in which OHA determined that temporary employment agencies were controlled by a franchisor. As in those cases, OHA noted the Spherion’s franchisor controlled payroll, billing, and cash flow.
Spherion attempted to argue that it was not controlled by the franchisor because it had voluntarily agreed to accept the restrictions in the franchise agreement. But OHA found that the mere fact that Spherion chose to allow the franchisor to control vital business functions was irrelevant. Rather, the pertinent issue was whether the franchisor actually controlled the business. Here, the franchisor unquestionably exercised considerable control.
Spherion contended that it should not have been found affiliated because it has the right to profit under the franchise agreement and will bear the risk of loss. OHA reasoned, however, that while those factors tend to support a conclusion that a franchisee is an independent business, in this case they were outweigh by the terms of the franchise agreement.
Spherion is represented by Anita J. Ponder of Quintairos, Prieto, Wood & Boyer, P.A