When Will Franchisees Be Considered Employees? Still Undecided
By Mario Herman,Esq.
A number of recent court cases have involved claims by franchisees that
they were de facto employees of the franchisor. The following court case is
another example of how the question of the employer-employee relationship under
a franchise contract continues to come up.
On February 16, 2012, the United States District Court, Northern District of
California, granted the Plaintiff’s motion for certification and stayed the
action pending resolution of the interlocutory appeal before the Ninth Circuit
in the matter of Juarez v. Jani-King of California, Inc.
Plaintiffs had purchased a cleaning service franchises from the defendant, Jani-King
of California, Inc., Jani–King, Inc., and Jani–King International, Inc.
(collectively, “Defendants”). The cleaning service franchises turned out to be
unprofitable. Plaintiffs sued the Defendants asserting, among other
things, claims under the California Labor Code, alleging that they were
misclassified as franchisees because Defendants exercised such control over them
so as to create an employer-employee relationship.
On January 23, 2012, the District Court dismissed Plaintiffs' Labor Code
claims when it granted in part and denied in part Defendants' motion for summary
judgment. Relying on the California Court of Appeal's decision in Cislaw v.
Southland Corporation, 4 Cal.App.4th 1284 (Cal.Ct.App.1992), the District Court
held that “[a] franchisee must show that the franchisor exercised ‘control
beyond that necessary to protect and maintain its interest in its trademark,
trade name, and good will’ to establish a prima facie case of an
employer-employee relationship.” Summary Judgment Decision at 8 (quoting Cislaw,
4 Cal.App.4th at 1296, 6 Cal.Rptr.2d 386). The Court rejected Plaintiffs'
argument that it should apply the test enunciated by the Ninth Circuit in
Narayan v. EGL, Inc., 616 F.3d 895, 900 (9th Cir.2010), reasoning the Narayan
test was inapposite in the franchise context. Id. at 9 n. 2.
Plaintiffs moved the Court to certify for interlocutory appeal that portion
of the Court's Summary Judgment Decision dismissing Plaintiffs' Labor Code
claims and to stay further proceedings pending that appeal. In granting
the Plaintiff’s motion, the court found that “there is substantial ground for
difference of opinion regarding the application of Cislaw to Plaintiffs' Labor
Code claims.” The Court noted that it had previously acknowledged in its
order denying class certification, that the controlling authority on this issue
“is not entirely clear.” The Court further noted that courts in other states
have reached different conclusions as to what test should apply to employment
classification claims brought in the franchise context. See Hayes v. Enmon
Enters., LLC, 10–CV–00382–CWR–LRA, 2011 U.S. Dist. LEXIS 66736, 2011 WL 2491375
(S.D. Miss. June 22, 2011); Awuah v. Coverall N. Am. Inc., 707 F.Supp.2d 80
(D.Mass.2010); Coverall N. Am., Inc. v. Division of Unemployment Assistance, 447
Mass. 852, 857 N.E.2d 1083 (2006). Additionally, the Court recognized that the
Ninth Circuit very recently issued an opinion in Ruiz v. Affinity Logistics
Corp, 667 F.3d 1318, 202 (9th Cir. Feb.8, 2012), which may have some bearing on
this dispute. In Ruiz the Ninth Circuit noted that the “California Supreme
Court has developed a multi-factor test for determining employment status. S.G.
Borello & Sons, Inc. v. Dep't of Indus. Rel., 48 Cal.3d 341, 256 Cal.Rptr. 543,
769 P.2d 399, 404–07 (1989). The California Supreme Court recognized that this
test “must be applied with deference to the purposes of the protective
legislation” that the worker seeks to enforce. Id., 256 Cal.Rptr. 543, 769 P.2d
at 406 (emphasis added). “[T]he employee-independent contractor issue cannot be
decided absent consideration of the remedial statutory purpose” behind the
statute the worker seeks to enforce. Id., 256 Cal.Rptr. 543, 769 P.2d at 405.”
This will be case worth watching for both franchisees and franchisors.
Mr. Herman based in Washington, D.C., represents franchisees domestically and
internationally negotiation, mediation, arbitration, and litigation.