At first blush it would appear obvious that a franchisee could not possibly be an employee of a franchisor. However, depending upon the degree of control that the franchisor exercises over the franchisee, an employment relationship could exist. In Williams v. Jani-King, no. 15-2049 (3d Cir. Sept. 21, 2016), in a 2-1 decision, the United States Court of Appeals for the 3rd Circuit affirmed the District Court’s Rule 23 class certification in a dispute over whether Jani-King franchisees should have been classified as employees, rather than independent contractors, in a wage dispute under the Pennsylvania Wage Payment and Collection Law (WPCL). The Third Circuit found that the commonality and predominance requirements of a class action were met because the issues concerning misclassification could be resolved by common evidence such as the franchise agreement, manuals, and representative testimony.
Jani-King is a company that provides janitorial and other cleaning services to restaurants, warehouses, and other commercial businesses and it licenses Jani-King trademarks, goodwill, and its cleaning system to franchisees who are classified as independent contractors. In order to obtain a franchise, individuals must pass a background check, pay an initial fee, sign a franchise agreement, attend a 13-day training class and pass a test about safety and a 450-page training manual. The franchisees purchase cleaning equipment and insurance which are offered through by Jani-King; and secure any licenses or permits. Franchisees are guaranteed certain dollar amounts in cleaning contracts while Jani-King obtains customers and enters contracts with them; franchisees are not a party to the customer contracts, however, they can reject assignments. Jani-King policy manuals dictate how often franchisees communicate with customers and a dress code. Customers pay Jani-King, which then pays the franchisees, after certain fees are deducted such as royalty, accounting and advertising fees. Some of the franchisees have over 20 employees, while others have no employees.
The WPCL requires employers, among other things, to pay to employees’ wages and agreed-upon benefits, by lawful means, making only lawful deductions from pay. In the Jani-King case, the main dispute is whether the plaintiffs are employees under the WPCL. In interpreting Pennsylvania law, courts apply a multi-factor test to determine if an individual is an employee or an independent contractor. These factors include whether there is control over the manner in which the work is done; the terms of any agreement between the parties; the nature of the work being performed; the skill required to perform the work; who supplies the tools; whether payment is by the job; and the right to terminate the relationship at any time. In assessing these criteria, no factor is dispositive, but the level of control being exercised is critical in assessing an individual’s status.
In Jani-King, the Third Circuit found that common evidence was present in the form of the franchise agreement, a policies manual, a training manual, and representative testimony about each of those documents. In assessing the level of control, the Third Circuit found that the franchise agreement and manuals placed controls on the franchisees including: how often to communicate with customers, how to address customer complaints, where to solicit business, uniform requirements,, record keeping, advertising requirements, obtaining vacation approval from the franchise, scheduling of vacations, a franchisees’ assignments, the franchisor maintaining he right to inspect work, the nature of the work, the skill required, tools used to perform the work, whether payment is by the job, and the right to terminate.
It is critical to note that the Third Circuit’s decision in Jani-King does result in the franchisees being declared employees. The case has now been remanded to the Direct Court where it will proceed as a class action and a trial will presumably result in a determination as to whether or not the franchisees are to be deemed employees.
For more information on the Pennsylvania Wage Payment and Collection Law and Abramson Employment Law, see http://www.job-discrimination.com/pennsylvania-wage-payment-and-collection-law.html