Recently, several franchisees convinced a federal court in Pennsylvania to certify a class action suit against the world's largest commercial cleaning franchisor, Jani-King. The franchisees argued that, despite disclaimers in their franchise agreements, Jani-King's universal policies and procedures were so controlling that they actually created an employment relationship under Pennsylvania's Wage Payment and Collection Law ("WPCL"), as opposed to an independent contractor relationship. The employee/independent contractor distinction matters because the latter allows franchisors to deduct certain deductions from the franchisees' "wages" that would otherwise be improper if they were employees.
The main issue was whether there was evidence common to the class showing that Jani-King had the right to control its franchisees' day-to-day activities. The court concluded there was. Specifically, it pointed to particular requirements in Jani-King's franchise agreements and its policies and training manuals regarding:
(a) how often the franchisees had to communicate with customers;
(b) how franchisees had to address customer complaints;
(c) where franchisees could solicit business;
(d) what franchisees had to wear;
(e) what types of records the franchisees had to keep;
(f) how the franchisees could advertise;
(g) how far in advance franchisees had to inform the franchisor of vacations; and
(h) how quickly the franchisee must have been able to be reached.
The court also noted that Jani-King controlled the franchisees' work assignments, had the right to inspect their work, and had the ability to change the policies and procedures as it saw fit. The court did not make any ultimate conclusions on the merits of whether Jani-King's franchisees were employees or independent contractors under WPCL; it just concluded that, among other prerequisites, that there was enough common evidence on that question to let the case proceed as a class action.
In the wake of the Jani-King decision, it is important that Pennsylvania franchisors strike the appropriate balance between exercising the normal degree of control which is "inherent in the franchise relationship," and a greater degree of control over its franchisees' day-to-day activities. The former is of course necessary to protect the franchisor's trademarks and goodwill whereas the latter may leave the franchisor vulnerable to class action lawsuits by potential "employees" under the WPCL – even when the franchise agreement expressly disclaims such a relationship.
Thanks to our colleague Devin Daines who contributed this post.
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