Client Bulletin #616

On May 24, a federal judge in California polished off a three-state win by master franchisor, Jan-Pro Franchising International, Inc., finding that under California law, unit franchisees (subfranchisees) who had franchise relationships with two California regional master franchisees (subfranchisors) were not misclassified “employees” of Jan-Pro International.

In Roman v. Jan-Pro International, Judge William Alsup of the Northern District of California granted summary judgment to Jan-Pro International, finding that

  • Jan-Pro International did not exercise “direct” or “indirect” control of its unit franchisees’ alleged “wages,” “hours,” or “working conditions.”
  • Jan-Pro International did not “suffer or permit” the plaintiffs to work simply because it benefitted from their efforts as subfranchisees in the franchise system.
  • Jan-Pro International did not “engage” the plaintiffs for services simply because they were unit franchisees within the master franchise structure.

Applying two prior California decisions, Martinez v. Combs and Patterson v. Domino’s Pizza, LLC, Judge Alsup expressly found it irrelevant that there were operational controls within the franchise system to ensure that Jan-Pro International’s subfranchisors upheld brand standards and, in turn, that subfranchisees upheld those same brand standards. He also found that Jan-Pro International’s rights to modify the controls or policies that applied to subfranchisors or to terminate subfranchisors who failed to comply did not show a “right to control” of the subfranchisees’ day-to-day activities or any “exercise” of day-to-day control. In short, the Court found that Jan-Pro International had no right to “direct the unit franchisees in their work” simply by virtue of the fact that, as Master Franchisor, Jan-Pro International “reserved the right to set workplace standards.”

Moreover, the Court found, simply providing its subfranchisors with a template from which they could bid for commercial cleaning accounts did not mean that Jan-Pro International controlled the plaintiffs’ wages. Rather, among other things, the plaintiffs controlled their own wages by determining whether to accept or reject accounts offered to them by the subfranchisors.

Judge Alsup also rejected the plaintiffs’ alternative theory of “employment” by Jan-Pro International – that the subfranchisors were Jan-Pro International’s “ostensible agents” and therefore the plaintiffs were employees of “Jan-Pro” in general, which included Jan-Pro International. As the Court said, “[I]t is of no moment that [plaintiffs] believed the companies they contracted with were called ‘Jan-Pro.’” In other words, being part of a franchise system that was branded as “Jan-Pro” did not create an ostensible agency relationship to make the plaintiffs employees of Jan-Pro International. As the Court noted, Jan-Pro International did nothing “through affirmative act or neglect” to lead the plaintiffs to believe they were employed by Jan-Pro International.

The Court also rejected the plaintiffs’ various claims of statutory and common law wrongdoing, finding no evidentiary support for the notion that they were harmed at all. In granting summary judgment on these claims as well, the Court struck the report of plaintiffs’ supposed “expert,” Steven Cumbow, primarily because he did not offer any helpful information to support the plaintiffs’ various claims.

The Roman decision was Jan-Pro International’s third victory involving similar issues. In 2007, after being threatened with a lawsuit, the company brought a declaratory action in its home state of Georgia, arguing that it was not the employer of certain unit franchisees. Jan-Pro International initially suffered a defeat in the Georgia Superior Court, but in 2011, upon appeal, the decision was reversed by the Georgia Court of Appeals. The subfranchisees in that case petitioned the Georgia Supreme Court for certiorari, but the petition was denied in July 2013.

Meanwhile, in 2008, multiple unit franchisees (including those in the Georgia case, and including the Roman plaintiffs from California), filed a class action in federal court in Massachusetts, alleging employment misclassification and tortious conduct by Jan-Pro International. In 2014, the federal court in Massachusetts granted summary judgment to Jan-Pro International, finding that the Georgia decision was res judicata and was well-reasoned under the undisputed facts. The Massachusetts decision is currently on appeal to the U.S. Court of Appeals for the First Circuit. Meanwhile, the Roman plaintiffs successfully moved to transfer their claims to the federal court in California. It was their case that was dismissed last week.