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BOSTON – A district judge once again has issued an order stating that Jani-King International and other entities misclassified its janitorial workers in Massachusetts by labeling them as franchisees.
In doing so, the world’s largest janitorial cleaning service franchisor will have to pay damages to the employees, which will include the franchise fees and additional business fees, as well as all insurance payments made by the workers. The judge also denied the company’s efforts to decertify the class action lawsuit, at this time representing approximately 300 janitorial workers.
This is the second case in Massachusetts where workers received a favorable ruling against a janitorial cleaning franchisor. After five years of litigation, a federal judge last March awarded workers in Awuah v Coverall North America Inc. with triple damages, totaling over three million dollars. Courts have found that these systems try to get around employment laws by having the workers sign franchise contracts and pay an upfront fee. This goes against the issue of good faith and fair dealing, a bone of contention with many franchisee groups today.
The judge’s decision, issued earlier this month, was based mainly on the fact that Jani-King did not satisfy the second prong of the three-prong test in Massachusetts’ general law, characterized as the misclassification test in employment. In its arguments, Jani-King failed to convince the court that the purported franchisees are performing a service “outside the usual course of the business of the employer.” That test is vital in determining whether a worker is an employee or an independent contractor.
One of the key segments of these lawsuits is how cleaning service franchisors, unlike other franchise companies, control their systems. Jani-King and similar firms operate as the contracting party to the cleaning contracts. Their personnel maintain customer account information, and are also responsible for billing and collecting money from clients. After they pay themselves, the janitorial companies then give what is left over to the franchisees.
Shannon Liss-Riordan of Lichten & Liss-Riordan, representing the janitorial workers in both cases said, “We are very pleased with the decision. This is another confirmation of what we have been alleging all along, that the workers are really employees, not franchisees. We are glad to have another ruling from another federal court judge to confirm that.”
US District Judge Mark L Wolf gave an in-depth oral analysis of the case prior to issuing his ruling. In the transcript he emphasizes that the janitorial workers claimed that Jani-King perpetuated abuses that are typical of commercial cleaning franchise systems. Specifically, the workers alleged the franchisor “targeted immigrants, having limited ability to speak English, lured them with the false promise that they would achieve the American dream through ownership of a small business, and then collected excessive fees in return for providing them nothing more than a low-paying janitorial job.”
The ruling states that Jani-King refers to all three of its entities: Jani-King International, Jani-King Boston and Jani-King, Inc., which wholly owns 18 regional subsidiaries. The judge presents how all three companies were involved in the overall Jani-King franchise system, and how that system operates.
Judge Wolf stressed that Jani-King is required to show that its purported franchise owners are performing a service “outside the usual course of the business of the employer.” He cites numerous examples of how the franchisor fails to do that. The Jani-King website offers “commercial cleaning services” stating, “Jani-King understands the world of commercial cleaning.” It also touts it is “the global leader in commercial cleaning services,” and it is “ranked the world’s No. 1 commercial cleaning franchise company year after year.”
But the judge's analysis goes beyond that. He also shows that in the company’s ad for a director of operations, it states the “applicant must have extensive commercial cleaning experience.” In its franchise agreement Jani-King touts it is “in the business of operating and franchising professional cleaning and maintenance businesses.” And in its cleaning contracts with clients it quotes that Jani-King “is in the business of providing commercial and maintenance services.”
Judge Wolf surmises that under the Attorney General’s interpretation of the law, “a reasonable factfinder would have to conclude that the business of Jan-King . . . as stated in its standard maintenance agreement, is to provide cleaning services.” He adds, “It is not an exception when it goes to somebody who’s called an ‘independent contractor.’” While Jani-King points out that franchisees do not perform the same tasks that it performs, selling franchises, billing clients, or developing proprietary materials, the judge declares that is not sufficient. If it were, prong two of the test would easily be evaded by companies.
While Jani-King ardently argued that this analysis of the statute would be fatal to franchising in Massachusetts, the judge said it’s not a sufficient argument. He explained that it may be the 2004 amended statute that makes it difficult for the franchisor/franchisee model to operate in the state, but it was the duty of the legislature, not the court, to create exemptions and exceptions.
Liss-Riordan said the judge’s ruling knocks down the crazy argument that these companies have been raising all along, that what we are doing here would end franchising in Massachusetts. “It won’t. There are significant differences in these “so called janitorial franchise companies and other real franchises. Judge Wolf lays that out. There are big differences,” the attorney said.
Jani-King, represented by Faegre Baker Daniels and Nixon Peabody law firms, conceded comment to Stephen Hagedorn, the company’s general counsel, who strongly disagrees with the reasoning of the court on the ruling. For one, Hagedorn said the court made a number of attempts to distinguish Jani-King from other franchisors, but was finally unable to do so. “At the end of the day, he acknowledged that the ruling and his interpretation of prong B [the second prong] could cause some problems for franchisors and franchisees in Massachusetts. But he felt it was the legislature’s job to fix those problems and not the courts,” Hagedorn said.
The general counsel also said that even though Judge Wolf gave a lot of analysis in his ruling he still followed the decision in the Coverall case. “We also feel he interpreted the second prong issue very broadly. In his transcript you will notice that he relied on what Jani-King holds its brand out to be on its website and in its maintenance agreements. The judge felt that because of how we market our brand Jani-King entities are in the business of performing commercial cleaning services,” Hagedorn explained.
The Federal Trade Commission has been warning consumers of the dangers of purchasing janitorial cleaning service franchises for almost twenty years.
Jani-King paid a $100,000 civil penalty in 1995 to settle FTC charges related to its disclosure documents. The complaint alleged that Jani-King failed on numerous occasions to provide prospective franchisees with pertinent information to support its contract-based earnings claims, its litigation history, and disclosure of its current franchise owners.
Jani-King was required to sign a consent agreement with FTC to settle the charges. By signing the contract to settle, the firm did not admit or deny violation of law.
Have these court rulings changed the way janitorial service franchise companies conduct their business? Jani-King’s general counsel said he cannot comment on any changes in their business model going forward, since the litigation is still pending.
Liss-Riordan said it appears that most, if not all, of these janitorial franchise companies in Massachusetts have changed their practices in one form or another. She explained, “We don’t know exactly what everyone is doing, but most seem to have changed the most heinous aspects of their practices. What we understand is that these upfront franchise fees aren’t being charged anymore, which was really the most pernicious part of the system. These workers were paying these huge fees and then financing portion of franchise fees for these “phantom” guaranteed amount of work.”
The Boston attorney said Judge Wolf’s ruling reinforces what they already knew. “Hopefully, it brings us one step closer to finality on this whole issue of workers being classified as independent contractors.”
|Jani-King - transcript of summary judgment order.pdf||137.18 KB|
|Jani-King order - 6-8-12.pdf||20.82 KB|