When a company issues franchises, and the workers (in this case janitors) claim they are not independent contractors and sue the franchise company, can that “relationship” be posited as a defense? A California court has decided that question in the negative, examining the true nature of the franchising company’s business. The case is entitled Roman v. Jan-Pro Franchising International Inc and was filed in federal court in the Northern District of California.
The Company argued it was not in the janitorial business but merely sold franchises. Thus, the Company argued it was actually in the business of selling these franchises and providing the logistical and other support that was needed by the franchisor. Thus, the Company sought to “get around” the allegation that the workers were integral to its business, which is a sure sign of employee status.
During the pendency of the appeal, the California Supreme Court ruled in Dynamex Operations West, Inc. v. Superior Court, that the A-B-C test applied for unemployment matters, i.e. independent contractor Under that test, someone is an independent contractor only if all the elements are met. They are: 1) the worker is free from the control and direction of the employer in connection with the performance of the work, both under the contract for the performance of the work and in fact; 2) the worker performs work that is outside the usual course of the hiring entity’s business. 3) the worker is customarily engaged in an independently established trade, occupation or business.
The Court looked at whether the workers were performing isolated tasks for the putative employer or were continuously engaged by it. The Court held that “here, as a matter of common sense, unit franchisees remained at all times necessary to defendant’s business.” The Judge noted that the “defendant’s business depended on unit franchisees performing cleaning services.” Importantly, the Court rejected the argument that the Company “only” sold franchise and was not in the business of selling cleaning services.
The court noted that the Company held itself out as “a cleaning business in public advertisements and websites.” That was the “foundation” of the Company’s business. There will be a trial on damages for the class in 2023.
The ABC test, as I have often said, is a very hard test for a putative employer to overcome. Also, when the independent contractor is performing tasks that are at the heart of the putative employer’s business, that shows that the work is an integral part of that employer’s business, which is bad. In other words, it is hard to franchise your way out of misclassification claims under this very stringent test.