[Code of Federal Regulations]
[Title 29, Volume 3]
[Revised as of July 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR794.117]

[Page 706-707]
 
                             TITLE 29--LABOR
 
         CHAPTER V--WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR
 
PART 794_PARTIAL OVERTIME EXEMPTION FOR EMPLOYEES OF WHOLESALE OR BULK 
 
Subpart B_Exemption From Overtime Pay Requirements Under Section 7(b)(3) 
                               of the Act
 
Sec. 794.117  Effect of franchises and other arrangements.

    Whether a franchise or other contractual arrangement affects the 
status of the enterprise as ``an independently owned and controlled * * 
* enterprise,'' depends upon all the facts including the terms of the 
agreements and arrangements between the parties as well as the other 
relationships that have been established. The term ``franchise''

[[Page 707]]

is not susceptible of precise definition. While it is clear that in 
every franchise a business surrenders some rights, it is equally clear 
that every franchise does not necessarily deprive an enterprise of its 
character as an independently owned and operated business. This matter 
was the subject of legislative consideration in connection with other 
provisions of the 1961 amendments to the Act. The Senate Report on the 
amendments, in discussing the effects of franchises and similar 
arrangements on the scope of the ``enterprise'' under section 3(r) of 
the Act, stated as follows:

    There may be a number of different types of arrangements established 
in such cases. The key in each case may be found in the answer to the 
question, ``Who receives the profits, suffers the losses, sets the wages 
and working conditions of employees, or otherwise manages the business 
in those respects which are the common attributes of an independent 
businessman operating a business for profit?''

                                * * * * *

    In all of these cases if it is found on the basis of all the facts 
and circumstances that the arrangements are so restrictive as to 
products, prices, profits, or management as to deny the ``franchised'' 
establishment the essential prerogative of the ordinary independent 
businessman, the establishment, the dealer, or concessionaire will be 
considered an integral part of the related activities of the enterprise 
which grants the franchise, rights or concession. (S. Rep. 145, 87th 
Cong., first session, p. 42.)


Thus there may be a number of different types of arrangements 
established in such cases and the determination as to whether the 
arrangements have the effect of depriving the enterprise of its 
independent ownership or control will necessarily depend on all the 
facts. The fact that the distributor hires and controls the employees 
engaged in distribution of the product does not establish the requisite 
independence of the distributor; it is only one factor to be considered 
(Wirtz v. Lunsford, 404 F. 2d 693 (C.A. 6).) Ultimately the 
determination of the precise scope of such arrangements and their effect 
upon the independent ownership and control of the enterprise under 
section 7(b)(3), as well as on the question whether such arrangements 
result in creating a larger enterprise, rests with the courts.