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Landmark worker classification fight plays out in federal court

Cleaning franchisees say they are employees, not owners, in Jan-Pro International's multilevel franchising scheme.

SAN FRANCISCO (CN) — With a federal judge in California poised to rule that it misclassified janitors as contract workers and the D.C. attorney general suing them for wage theft, commercial cleaning company Jan-Pro International is now arguing that it’s not in the janitorial business at all.

“We have evidence that a reasonable jury could conclude that Jan-Pro is not a cleaning business,” Jan-Pro attorney Jeffrey Rosin with O’Hagan Meyer told U.S. District Judge William Alsup at a hearing Thursday to decide the fate of a landmark labor case now in its 14th year of litigation.

The Georgia-based company operates as a multilevel franchising scheme, selling cleaning businesses to “Regional Master Franchisees” throughout the nation who in turn sign "unit franchisee" agreements with individuals who perform the actual janitorial work.

Master franchisee middlemen pay janitors only after deducting 4% for Jan-Pro, and the janitors are also required to pay a “franchisee fee” to be allowed to work, from which the master franchisees pass on 10% to Jan-Pro.

“We are in the business of selling and supporting master franchises,” Rosin said. “There are a lot facts here, a lot of actual facts a jury could hold on to and find that Jan-Pro is not in the cleaning business.”

That argument didn’t appear to sway Alsup, who issued a tentative ruling ahead of Thursday’s hearing that mostly sides with the workers — granting them both class certification and summary judgment on a host of claims that include unlawfully deducting royalties and failing to pay minimum wages or reimburse for supplies, uniforms, and travel time.

In a lawsuit first filed in Massachusetts in 2008, low-wage cleaners accused Jan-Pro of preying on immigrant workers by inducing them to buy cleaning franchises while taking a hefty cut of their earnings as “royalties” and misclassifying them as independent contractors. Claims brought by janitors who live in California were eventually severed and transferred to the Northern District.

In finding for Jan-Pro in 2017, Alsup applied the employment relationship defined by the California Supreme Court in Martinez v. Combs. Alsup also looked to the high court’s ruling in Patterson v. Domino’s Pizza, which determined that franchisors are not vicariously liable for franchisees’ workplace conduct.

The Ninth Circuit disregarded Patterson when it overturned Alsup in 2019, since it was not a wage-and-hour case but focused instead on a franchisor’s vicarious liability for a worker’s sexual assault. 

Then in 2018, the California Supreme Court ruled in Dynamex Operations West, Inc. v. Superior Court of Los Angeles that employers can only classify workers as independent contractors if they can show A) the hiring entity does not directly control the worker, B) the work falls outside the hiring entity’s usual course of business, and C) the worker is “customarily engaged in an independently established trade occupation, or business of the same nature as the work performed.” 

The test was written into California Labor Code with the passage of Assembly Bill 5 in 2019.

Alsup was asked to take another look at the case after the Supreme Court ruled that Dynamex applies retroactively. Having done so, Alsup found the janitors are necessary to Jan-Pro’s business under the “B” prong of the Dynamex test.

“Defendant’s business depended on unit franchisees performing cleaning services,” he wrote. “Without a consistent supply of unit franchisees, defendant’s business would have cratered. And, defendant earned four percent of all cleaning revenue that master franchisees collected from unit franchisees. Defendant’s revenue, therefore, depended on the amount of work that unit franchisees performed.”

He also flatly rejected Jan-Pro’s argument that it’s not a cleaning business.

On Thursday, labor attorney Adelaide Pagano, a partner at Lichten & Liss-Riordan, urged Alsup to adopt his tentative decision. “It was exactly on point,” she said. “These cleaning workers are essential to its business and it is not correct for Jan-Pro to suggest it is in a different business than the cleaning franchisees.”

Rosin asked Alsup to reconsider, saying Jan-Pro should qualify for a Dynamex exemption under AB 5, which allows a more permissive standard for determining independent contractor status for a business that is contracted to provide services to another business.

Pagano said Jan-Pro doesn’t fall under the business-to-business exception, arguing that Jan-Pro doesn’t contract directly with commercial customers, but with the franchisors who do the work.

Alsup took the arguments under submission, saying he would give both sides a few more days to submit additional briefing on the business-to-business issue.

Thursday’s hearing coincides with D.C. Attorney General Karl Racine suing the company over its labor practices, including misclassifying janitors and saddling them with unfair franchise fees.

“Defendants have imposed a blizzard of fees on unit franchisees that unlawfully cut into their wages, including thousands of dollars in initial franchise fees and a slew of recurring monthly fees that eat up as much as 25% of their monthly earnings. These fees are unlawful wage deductions that are tantamount to requiring employees to pay for the privilege of working for defendants,” Racine's complaint says, adding that Jan-Pro also violates the District of Columbia’s Sick and Safe Leave Act “by failing to provide unit franchisees with any paid sick leave whatsoever.”

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