April 04, 2025|Publications
April 4, 2025 | U.S. District Court for the Central District of Illinois | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Sue E. Myerscough of the U.S. District Court for the Central District of Illinois granted partial summary judgment to plaintiff Valerie Cowen and denied summary judgment to Choice Hotels International Service Corporation (“Choice Hotels”). Cowen alleged that Choice misclassified her as an independent contractor rather than an employee, depriving her of protections under the Illinois Unemployment Insurance Act (“Unemployment Act”), 820 ILCS 405/212, and the Illinois Wage Payment and Collection Act (“Wage Act”), 820 ILCS 115/2. Choice argued that Cowen, through her LLC, operated independently, selected her own methods, and could take on other clients. The court found that Choice failed to meet its “strict burden of proof” to establish all three prongs of the independent contractor exemption, holding that Cowen was an employee under both statutes.
Relevant Background
Valerie Cowen began working with Choice Hotels in 2012 through her wholly owned company, Cowen Consulting, LLC. Under a Master Services Agreement drafted by Choice’s legal team, Cowen was retained to serve as a Regional Administrator for the Choice Hotels Owner’s Council, a franchise advisory body representing approximately 4,000 Choice franchisees. The Council’s stated mission was “to represent franchisees of Defendant by providing ideas, advocacy, programs and services”.
As Regional Administrator, Cowen organized meetings, maintained licensee databases, produced newsletters, coordinated marketing co-ops, and served as a point of contact for franchisee members. She was expected to be generally available during business hours, respond promptly to Choice’s requests, and provide written summaries of regional activities. Her compensation was fixed by Choice and paid in equal monthly installments.
In 2014, Cowen transitioned into the newly created role of Director of Events, Technology, and Communication (“Events Director”). She oversaw national and regional meetings, managed the Council’s website and social media accounts, and coordinated publication of the Council’s newsletters. She also handled technology initiatives and event logistics. Although she assumed this new role, Cowen never signed a new contract; her engagement continued under the original 2012 agreement, which had technically expired.
Cowen remained the only person to hold the Events Director title until her contract was terminated in May 2020. She argued that her classification as an independent contractor was illusory, noting that she was required to follow Choice’s directives, maintain set hours, and represent the Council as its official spokesperson. After her termination, she filed suit alleging that Choice’s misclassification deprived her of wages and benefits owed under Illinois law.
Decision
Judge Myerscough applied the three-part test under both the Unemployment Act and Wage Act. To succeed, Choice had to prove that Cowen (1) was free from its control and direction, (2) performed services outside the usual course of its business or places of business, and (3) was engaged in an independently established trade, occupation, or business. See 820 ILCS 405/212; 820 ILCS 115/2. The court reiterated that “[a]ll three conditions must be satisfied for the independent-contractor exemption to apply” and that the employer bears a “strict burden of proof.” AFM Messenger Serv., Inc. v. Dep’t of Emp. Sec., 198 Ill. 2d 380, 397–98 (2001).
On the first prong—control and direction—Choice argued that Cowen “was given the utmost autonomy in carrying out her responsibilities and was free to make decisions without prior approval.” It pointed to the independent contractor language in the agreement and her ability to select venues and manage her own schedule. Cowen, however, testified that she was expected to keep business hours from 8:00 a.m. to 5:00 p.m., respond quickly to communications, and meet deadlines set by Choice leadership. The court stressed that “the designation or description which the parties apply to their relationship is not controlling.” Ill. Admin. Code tit. 56, § 2732.200(b) (2013). Instead, Illinois law requires examining “the business reality or totality of circumstances.” Jack Bradley, Inc. v. Dep’t of Emp. Sec., 146 Ill. 2d 61, 75–76 (1991). Noting evidence that Cowen was assigned territories, furnished business cards, required to attend meetings, and discharged at Choice’s discretion, the court found that Choice had not satisfied its burden. “Defendant does not establish that Plaintiff was an independent contractor under the first required prong”.
On the second prong—usual course of business—Choice contended that Cowen’s work was not essential, pointing out that her position was eliminated during the COVID-19 pandemic. The court rejected this reasoning, citing Carpetland U.S.A., Inc. v. Ill. Dep’t of Emp. Sec., 201 Ill. 2d 351, 386 (2002), which instructs that the key inquiry is whether the services are “necessary to the business of the employing unit or merely incidental.” The court held that Cowen’s responsibilities—including organizing regional meetings, publishing newsletters, and maintaining franchisee communications—were “necessary to the business of the employing unit,” not merely incidental. In the court’s words, “[n]either of Plaintiff’s roles nor her subsequent responsibilities were ‘merely incidental’ to [the Council’s] mission”.
On the third prong—independently established trade—Choice pointed to Cowen’s ownership of Cowen Consulting, her work as a community college instructor, and her operation of a separate LLC. The court found these insufficient, explaining that Cowen Consulting “never offered services to any person or firm other than Defendant.” Citing AFM Messenger Serv., the court concluded that Cowen “was not able to operate [her business] without the benefit of a relationship with [Choice], or another [similar] company,” and therefore her business “was not established independently.” AFM Messenger Serv., 198 Ill. 2d at 401–02; see also Jack Bradley, 146 Ill. 2d at 80–81.
Judge Myerscough summed up the ruling directly: “Defendant does not meet its strict burden to prove that the independent contractor exception applies to Plaintiff under the Unemployment Act and the Wage Act.” Because Choice failed all three prongs, Cowen’s motion for partial summary judgment was granted, and Choice’s competing motion was denied.
Looking Forward
This decision is a significant warning to franchisors about the risks of misclassification in the franchise ecosystem. Advisory councils and staff may be labeled as “independent contractors” in formal agreements, but courts will closely examine the business reality. In Illinois like many other jurisdictions, where the statutes are construed liberally in favor of workers, franchisors face an uphill battle when attempting to prove all three elements of the independent contractor exemption.
Importantly, this is not just an Illinois problem. California, Massachusetts, and New Jersey all apply similar three-part tests, commonly referred to as the “ABC test,” that presume employee status unless the employer can prove otherwise. The hardest element to prove is usually that the worker performs work that is outside the usual course of the employer’s business, because this requires a firm showing that the worker performs work that is fundamentally different from the company’s core business. Other states, such as Connecticut and Vermont, have adopted comparable frameworks. As a result, franchisors operating across multiple jurisdictions may face heightened scrutiny of contractor classifications in several venues.
If a worker succeeds in proving misclassification, the franchisor may be responsible for paying significant damages and penalties including for back wages, meal and rest break premiums, waiting time penalties, wage statement penalties, reimbursement of expenses, unpaid payroll taxes, workers’ compensation coverage, interest, and attorneys’ fees and costs depending on the jurisdiction.
Practical takeaways for franchisors include: reviewing independent contractor arrangements regularly; avoiding requirements that contractors form single-member LLCs solely to contract with the brand; and ensuring that services outsourced to contractors are truly peripheral, not central, to the franchisor’s mission. Courts across jurisdictions are increasingly willing to look beyond contractual labels to assess how workers are integrated into brand operations, and franchisors who fail to account for this trend may face costly litigation and compliance challenges.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
Jennifer M. Misetich is a shareholder at Buchalter and holds the position of Admin Chair for our Labor & Employment practice group, and also serves as the Vice-Chair for our Franchise Law industry group. For questions about this article or media inquiries, you can contact Jennifer at jmisetich@buchalter.com.
This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.
