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In a lawsuit filed by two Jani-King franchisees, alleging they were wrongly classified as independent contractors instead of employees, an appeals court affirmed in September a ruling by the district court that the case could go forward as a class action against the world's largest commercial cleaning franchisor.
Darryl Williams and Howard Brooks first filed their complaint in state court in 2009 on behalf of a putative class of approximately 300 Jani-King franchisees in the Philadelphia area, alleging they were seeking unpaid wages as Jani-King "employees" in violation of Pennsylvania Wage Payment and Collection Law (WPCL). After Jani-King was successful in moving the case to Pennsylvania District Court, Eastern District, the company filed a motion to dismiss the lawsuit. One of the Third Circuit Court of Appeals judges explained that for reasons unclear from the record, it took the district court three years to rule on the franchisor's motion, which it eventually granted in part and denied in part in December 2012.
DLA Piper litigator Karen Marchiano stated in the firm's Insights publication last month that in the Third Circuit's "sharply divided 2 to 1 decision, the blistering dissent strongly disagreed." The dissenting judge stated, "Franchising constitutes a bedrock of the American economy" and "the majority's opinion threatens the viability of this basic economic bedrock." In his decision, Judge Robert E. Cowen expressed that he "worried that the majority's opinion [of the court of appeals] would lead to additional class action litigation against other franchisors and would be cited to support the proposition that franchise system controls may by themselves give rise to an employer-employee relationship."
To determine whether class certification was appropriate related to the alleged unpaid wages, the two majority judges predicted the Pennsylvania Supreme Court would apply a multifactor test with certain factors to distinguish between employees and independent contractors. The "paramount" factor, in a list of ten, was the right to control the manner in which the work is accomplished. Marchiano said the right to control was more significant than actual control.
The appeals court majority judges then turned to the question of whether, using the multifactor test, the employment status question could be resolved through evidence common to the class. The attorney said, "The Third Circuit held that documentary evidence alone could be sufficient to resolve the multifactor employment status test, and ruled that the franchisee classification issues were susceptible to class-wide determination through common evidence (the franchise agreement, policies manual, training manual, and testimony about those documents)."
Marchiano said the plaintiff franchisees pointed to specific provisions in the franchise agreement and company manuals to show that Jani-King had the ability to control the "manner in which franchisees perform their day-to-day tasks," through mandates such as dealing with customer complaints, where franchisees can solicit business, what franchisees must wear, to name a few.
The majority judges refused to reach the merits of whether the controls in the franchise agreement and manuals made Jani-King the employer of its franchisees under Pennsylvania's multifactor employment test. Marchiano stated, "Jani-King may ultimately be correct that the franchise agreement and manual do not contain sufficient controls over the day-to-day work of its franchisees to make them employees under Pennsylvania law, and we express no opinion on that matter here. Either way, it is possible to make the determination on a class-wide basis."
The judges then rejected Jani-King's and the International Franchise Association's argument that system controls inherent in franchising should be irrelevant when considering whether an alleged employer has the right to exercise day-to-day control. They wrote in their decision, "Pennsylvania law does not distinguish between controls put in place to protect a franchise's goodwill and intellectual property and controls for other purposes. Under Pennsylvania law, no special treatment is accorded to the franchise relationship. A franchisee may be an employee or an independent contractor depending on the nature of the franchise system controls."
The dissenting judge disagreed. "Pennsylvania's highest court would not allow the very thing that defines [franchising], the uniformity of product and control of its quality and distribution to be used to put at risk this critical and generally beneficial sector of our economy." Marchiano said the judge advocated for a test that considered whether the controls at issue exceeded what was necessary to protect a franchisor's trademark, trade name, or good will. "Under this test, the dissent would have found that there was very little, if any, common evidence tending to prove an employer-employee relationship between Jani-King and its franchisees.
After the Third Circuit issued its ruling, Jani-King petitioned for rehearing or rehearing en banc, which is still pending. The International Franchise Association then asked to file an amicus brief in support of Jani-King's rehearing petition, emphasizing that the opinion threatened the viability of and foundation of franchising.
Shannon Liss-Riordan of Lichten & Liss-Riordan argued the case before the Third Circuit. Aaron D. Vanoort of Faegre Baker Daniels argued for Jani-King. Jonathan Solish of Bryan Cave was counsel for the International Franchise Association for its amicus brief in support of Jani-King.
DLA Piper disclosed that it represented the IFA on the recent amicus rehearing brief.
UPDATE: Blue MauMau has been informed that the Third Circuit Court of Appeals has denied Jani-King's and the International Franchise Association's request for a rehearing en banc. (See Attachment)
|Order Denying En Banc Hearing Request.pdf||91.88 KB|