August 2, 2022
By: Thomas O’Connell
Citation:
Roman v. Jan-Pro Franchising International, Inc., 342 F.R.D. 274 (N.D. Cal. 2022)
Executive Summary:
In this reported decision, Judge William H. Alsup of the United States District Court for the Northern District of California addressed claims by janitors against Jan-Pro Franchising International, Inc., alleging employee misclassification under California law. The court applied the ABC test from Dynamex Operations W., Inc. v. Superior Court, 4 Cal. 5th 903 (2018), and granted partial class certification and summary judgment in favor of the plaintiffs. This case underscores the importance of proper classification and operational compliance in franchise systems under California labor laws.
Relevant Background:
The plaintiffs, Gloria Roman, Gerardo Vazquez, and Juan Aguilar, were janitors who operated within Jan-Pro Franchising International, Inc.’s three-tier franchising structure. At the top of this structure, Jan-Pro acted as the franchisor, licensing regional master franchisees to manage territories under the Jan-Pro brand. These master franchisees were responsible for contracting with individual “unit franchisees,” like the plaintiffs, who performed cleaning services for businesses.
The plaintiffs claimed that their classification as independent contractors was improper because Jan-Pro exercised significant control over their work. They alleged that Jan-Pro’s franchising model created an employer-employee relationship, pointing to strict operational requirements, oversight of business practices, and mandatory fees deducted from their earnings. These fees included charges for management, sales, and marketing, which plaintiffs argued violated California’s wage and hour laws.
The plaintiffs raised several legal claims, including failure to pay minimum wages for mandatory training, failure to reimburse for expenses such as uniforms and cleaning supplies under California Labor Code § 2802, and unlawful deductions under §§ 221 and 223. Previously, the district court granted summary judgment for Jan-Pro on the misclassification claims. However, following the California Supreme Court’s adoption of the ABC test in Dynamex Operations W., Inc. v. Superior Court, 4 Cal. 5th 903 (2018), the Ninth Circuit vacated that decision and remanded the case for reconsideration under this more rigorous standard.
Decision:
- The court held that Jan-Pro failed to satisfy Prong B of the ABC test, which requires that workers perform tasks outside the usual course of the hiring entity’s business. Cleaning services, the work performed by the plaintiffs, were found to be central to Jan-Pro’s business model. Therefore, the court concluded that the plaintiffs were employees rather than independent contractors. This determination was based on the framework established in Dynamex Operations W., Inc. v. Superior Court and applied retroactively in Vazquez v. Jan-Pro Franchising Int’l, Inc.
- The court further held that class certification was appropriate for claims involving failure to pay minimum wages for mandatory training, failure to reimburse expenses for uniforms and cleaning supplies, and unlawful deductions for management and marketing fees. These claims met the requirements for class-wide resolution under Federal Rule of Civil Procedure 23(b)(3). However, the court declined to certify claims involving overtime wages, as they did not satisfy the commonality and predominance standards. Thus, the scope of the certified class was limited to unit franchisees who had contracted with Jan-Pro’s master franchisees in California since December 12, 2004.
- Finally, the court granted summary judgment for the plaintiffs on the certified claims. It reasoned that Jan-Pro’s operational control over franchisees and its reliance on their cleaning services demonstrated an employer-employee relationship. For this reason, Jan-Pro’s arguments for summary judgment were rejected, as the company failed to show compliance with the stricter requirements of the ABC test under California labor law.
Looking Forward:
This decision has far-reaching implications for the franchise community, particularly in jurisdictions applying the ABC test. Key lessons include:
- Franchisors must carefully structure franchise agreements to limit control over franchisees’ operations, to ensure alignment with independent contractor classification standards.
- Also, franchisors should ensure that the work performed by franchisees is demonstrably separate from the core business of the franchisor. In this case, the court found that cleaning services were central to Jan-Pro’s business model, which contributed to the finding of an employment relationship. A different outcome might have been possible if Jan-Pro had demonstrated that its business primarily involved franchising rather than direct involvement in cleaning services.
- Regular audits of franchise agreements and practices are also essential. Legal counsel should evaluate whether contractual terms align with the ABC test and adjust language to limit potential