Franchisor Can Be Liable as “Employer” for Missclassifying Workers
Lewitt HackmanThe Ninth Circuit sent shockwaves through the franchise industry in ruling that the remaining 12 months’ California Supreme Court choice broadening who can also bring wage misclassification claims (Dynamex v. Superior Court) applied retroactively to a franchisor and that a franchisor can be accountable for misclassification committed by using its franchisee. Jan-Pro operated a 3-tiered franchise structure that offered cleansing and janitorial services. The franchisor bought distinct rights to “local grasp franchisees” for a Jan-Pro enterprise in particular geographic areas. The local master franchisee then bought “unit franchises.”
Unit franchisees, including plaintiffs, had a right and obligation to pay bills supplied by the regional grasp franchisee and declare their own debts. Plaintiffs claimed that, despite this franchise structure, they had been employees of Jan-Pro and had been misclassified below a three-tiered franchise relationship.
The district court docket disregarded the lawsuit against Jan-Pro, finding that Jan-Pro did not have the necessary control over unit franchisees to make Jan-Pro an organization. The California Supreme Court (a state court) simultaneously exceeded its ruling in Dynamex as the unit franchisees appealed the dismissal to the Ninth Circuit (a federal court docket).
The Ninth Circuit reviewed the Dynamex choice, which adopted a test called “ABC” for reading if a worker has been misclassified. To prove an employee isn’t always an employee, an enterprise weights to reveal all the following: (A) the employee is free from manipulating over how to carry out the services; (B) the services are outside the enterprise’s regular route; and (C) the employee is in an independently mounted role. The Ninth Circuit held that the ABC test was implemented retroactively. Since the district courtroom did not have the opportunity to apply the Dynamex ABC to take a look at Jan-Pro, the Ninth Circuit reversed and remanded the case for that determination.
The Ninth Circuit additionally furnished “steerage” about applying prong B of the ABC test. The courtroom rejected Jan-Pro’s position that its business was franchising instead of cleaning services, considering that “franchising is not itself a business.” The court held that unit franchisees had been possibly “important and incidental” to Jan-Pro’s commercial enterprise of cleansing services because Jan-Pro benefitted by taking a percentage of income Jan-Pro’s enterprise model perhaps is predicated on unit franchisees acting cleaning services.
The retroactivity of Dynamex subjects employers to legal responsibility for misclassifying people as impartial contractors for so long as California’s statute of obstacles allows. Even conventional franchise structures may additionally fall under the scrutiny of the retroactive ABC test. In March 2019, the Ninth Circuit reversed the judgment in favor of 7-Eleven regarding whether franchisees had been misclassified as unbiased contractors and recommended the district court docket to live court cases until the decision of Jan-Pro. Haitian v. 7-Eleven, Inc. (ninth Cir. 2019) 762 Fed. Appx. 393.
Now that ABC looks at how it applies to franchisees and discerned franchisors while deciding if employees have been misclassified as impartial contractors, franchisors face elevated exposure in worker misclassification and other salary and hour claims. Time will inform the closing reach of Jan-Pro’s application to franchisors. However, it behooves franchisors to inspire California franchisees to resolve such claims at the outset, at the risk of the franchisee indemnifying and defending their franchisor in such claims.
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