Last year, our office foreshadowed that the Dynamex decision re-defining the independent contractor relationship may extend to the franchisor-franchisee relationship.
This week our prediction that Dynamex' ABC definition for independent contractors for franchises was realized, in the Federal 9th Circuit case of Vasquez v. Jan-Pro Franchising, Inc. So, if you are a franchisor or mid-level franchisor, chances are a disgruntled franchisee may try to take advantage of you and claim to be an employee – and he may win! Even multi-level franchise arrangements do not affect the top-tier franchisor. As the court stated:
As long as the worker was providing a service to the hiring entity even indirectly, the hiring entity can fail the ABC test and be treated as an employer.
Some quick take-aways to think about over the weekend:
1) Dynamex' employment definitions may be extended further. Even those business relationships like a franchise that you believed would protect you from employment claims may not work! The Courts will still analyze those workers to see if they are really employees, as defined by Dynamex' ABC test, which in a nutshell is defined as: (A) absence of employer control; (B) worker's service performed outside usual business of employer; (C) worker is customarily engages in independent business. If your worker is not an employee on payroll, a legal analysis of that relationship might help you.
2) Arbitration agreements worked to keep the mid-level franchisor out of court, and resolved those cases much earlier and at lower cost. Consider a good arbitration agreement with class-action waiver, especially as the example of Vasquez and related class-action cases were filed in 2008 – over two decades of litigation and attorney fees. Can your business afford to be the next test case?
3) This ABC definition for independent contractors is retroactive, meaning it applies even to older cases. So, you may expect former workers of years ago to pop up and claim unpaid wages and overtime.
There is more to learn from this and other recent cases that have challenged employers throughout the state.
Perhaps now is a good time to speak with the Employment Law Attorneys at Dieringer Law Group, APC. We have a few good plans to help protect your business.
Despite warnings that applying the ABC test to franchises “would sound the death knell for Franchising in California”, the 9th Circuit in Vasquez held that these franchise relationships may be improperly misclassified, and those franchisees would be entitled to minimum wage and overtime, meals paid rest breaks, and workers compensation and unemployment insurance benefits, among other benefits of employment.
It bears repeating that the California Supreme Court in Dynamex reached all the way to Massachusetts' to insert its “Independent Contractor Law” (MICL) as the new rule in California for defining an independent contractor relationship.
The “ABC” test presumes that a worker is an employee, unless the hiring agent can rebut that presumed employment relationship by showing (A) absence of control by the hiring agent over the worker; (B) the service is performed outside the usual course of business of the employer; and (C) the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the work performed.
Jan-Pro operated a three-tiered franchising structure that offered cleaning and janitorial services. Jan-Pro sold exclusive rights to use its trademark in the name "Jan-Pro" to entities known as regional master franchisees that became responsible for the Jan-Pro business in a defined geographic territory and gained the exclusive right to sell cleaning franchises in that territory. In turn, regional master franchisees sold "unit franchises," pursuant to which the purchasers gained the exclusive right to service certain accounts provided to them by their regional master franchisees.
engaged in a multi-level franchise system wherein in it
This litigation involving franchisor Jan-Pro has several related cases that span over two decades, two federal district courts and two federal appellate court decisions, and State Court litigation in Massachusetts and Georgia.
In Georgia, where Jan-Pro is headquartered, the Georgia Appellate Court applied the Massachusetts' ABC test in a case closely related to Vasquez. But the court refused to find an employment relationship by concluding: “Depianti was free from the control and direction of Jan-Pro; the cleaning services he performed were outside the usual course of Jan-Pro's business; and Depianti was engaged in an independently-established business.” The Georgia Supreme Court tacitly agreed by refusing to hear it.
Take-Aways from Vasquez.
1. Retroactive. The ABC definition for independent contractors is retroactive, meaning it applies to employees working before that Massachusetts definition was first introduced by the California Supreme Court on April 30, 2018.
2. Persistence. Beware of the dogged persistence of plaintiff attorneys. This case commenced in 2008 in the state of Georgia, then to Federal Court in Massachusetts, with a brief Q&A to the Massachusetts Supreme Court, then back to Federal Court. These plaintiffs were parties to the earlier actions, before their claims were severed and sent to Federal Court in Northern California.
3. Arbitration. For a long time in California, working relationships have varied between wage-earning employees and contractor relationships. Last year's Dynamex decision from our California's Supreme Court turned this
1. It is unclear why our plaintiff unit franchisees have sued only Jan-Pro, not the parties they contracted with directly. One explanation is that their agreements with their regional master franchisees included mandatory arbitration provisions.