Are Janitors “Franchisees” or Employees? Ninth Circuit Decision Applies Dynamex Retroactively to California Labor Law Claims
Last year the California Supreme Court issued its landmark decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which stated that all workers are “presumed to be employees” unless the employer can prove the worker is an independent contractor based on a three-part “ABC test.” The three tests include:
- (A) The worker is “free from the control and direction of the hirer in connection with the performance of the work,” both under the terms of the contract and in practice.
- (B) The worker performs work that is “outside the usual course of the hiring entity’s business.”
- (C) The worker “customarily” performs the agreed-upon work “in an independently established trade, occupation, or business of the same nature.”
Worker classification matters because “employees” are entitled to certain rights under California law that “independent contractors” are not. And many employers try to subvert the law by misclassifying its workforce. But in the aftermath of Dynamex, these employers are now finding the ABC test being applied retroactively to their business models.
Ninth Circuit: Outcome of Mass. Litigation Does Not Affect Calif. Plaintiffs
For example, a three-judge panel of the U.S. Ninth Circuit Court of Appeals in San Francisco recently held that Dynamex retroactively applied to a long-running California employment law dispute involving a Georgia-based cleaning franchise operator. The case, Vazquez v. Jan-Pro Franchising Int’l, Inc., may end up having a significant impact on other businesses that rely on a “franchise model” to classify certain types of service workers as independent contractors.
The defendant in this case, Jan-Pro, operates what is known as a two-tier franchise model. Jan-Pro contracts with “master franchisees” who serve as intermediaries. The master franchisees then contract with “unit franchisees,” i.e., the individual janitors who actually provide the cleaning services to customers.
In 2008, a group of unit franchisees sued Jan-Pro in Massachusetts federal court. The plaintiffs alleged they were actually employees of Jan-Pro who were misclassified as independent contractors. Eventually, a group of California plaintiffs were split off from the Massachusetts litigation and proceeded with their own lawsuit in California. Meanwhile, Jan-Pro convinced a Georgia court to rule the Massachusetts plaintiffs were independent contractors under Massachusetts law (which applies an ABC test), thereby ending that litigation.
But this did not end the California litigation. As the Ninth Circuit explained, the California plaintiffs were no longer parties to the Massachusetts litigation, so they were not bound by the final resolution of that case. More to the point, the California Supreme Court’s decision in Dynamex came after the end of the Massachusetts case. And in California, judicial decisions normally “have retroactive effect.”
As far as the merits of the California plaintiffs’ claims go–i.e., whether they are employees under the ABC test–the Ninth Circuit returned the case to answer that question. The Ninth Circuit did offer some guidance, however, noting the fact Jan-Pro employed a “franchise” model for its business “does not alter the Dynamex analysis,” and that it was possible to hold a “top-level franchisor” was the legal employer of a lower-level franchisee despite the presence of an intermediary franchisee.
Decision Will Have “Broader Ramifications” for Franchisors
The Ninth Circuit acknowledged its decision “has broader ramifications” that just the outcome of this one case. It potentially opens the “floodgates to nationwide liability for multiple years of back wages and overtime pay,” not just on the part of Jan-Pro, but other companies that rely on multi-tier franchise models. If you have questions about how this decision might affect your own legal status as a worker, you should contact a qualified California employment wage and hour law attorney right away.