Jani-King franchise agreements didn’t violate labor laws – 2nd Circ.

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2nd U.S. Circuit Court of Appeals in New York. REUTERS/Caitlin Ochs

  • Workers can be franchisees and employees under Connecticut law
  • Fees Jani-King collected out of worker revenue were lawful
  • Dissent says state’s top court should step in

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(Reuters) – A divided U.S. appeals court on Thursday said janitorial services company Jani-King International Inc did not violate Connecticut law by deducting fees from the revenue earned by its franchisees, even assuming the company should have classified them as employees.

The 2nd U.S. Circuit Court of Appeals in a 2-1 ruling said workers can be properly classified as both franchisees and employees under Connecticut law, and Jani-King franchisees had signed contracts agreeing to pay thousands of dollars in upfront fees and hand most of their revenue over to the company.

The court said that all businesses operate by keeping most of the revenue taken in from customers and only using a portion to pay for labor, and nothing in Connecticut law insulated franchisees from that model.

Shannon Liss-Riordan of Lichten & Liss-Riordan, who represents the plaintiffs in the proposed class action, did not immediately respond to a request for comment. Nor did Texas-based Jani-King and its lawyers at Faegre Drinker Biddle & Reath.

The case is one in a series to accuse Jani-King and similar janitorial companies, including Jan-Pro Franchising International Inc, of using the franchise model to evade their obligations to employees under federal and state labor laws.

Jani-King is facing a similar lawsuit filed by the U.S. Department of Labor on behalf of franchisees in Oklahoma and in 2019 paid $3.7 million to settle misclassification claims by workers in Pennsylvania.

According to filings in Thursday’s case, Jani-King franchisees pay tens of thousands of dollars in initial fees and the company then deducts additional fees from their revenue for accounting, royalties, advertising and insurance.

The plaintiffs accused Jani-King of violating Connecticut laws barring employers from withholding or diverting employees’ wages and from demanding “kickbacks” in exchange for employment. They said they were Jani-King’s employees under state law because the company controlled many aspects of their work and they were involved in Jani-King’s usual course of business.

U.S. District Judge Victor Bolden in New Haven, Connecticut granted summary judgment to Jani-King in late 2019. He said that even if Jani-King’s franchisees were also its employees, the fees were lawful because the workers had signed contracts agreeing to share revenue with the company.

The plaintiffs appealed, arguing that they could not contract away their rights as employees under state wage law, and even though they had signed agreements, those pacts violated public policy and were void.

But the 2nd Circuit on Thursday said the anti-kickback law only applied to deductions from wages that violated employment contracts – or, in the plaintiffs’ case – franchise agreements.

Connecticut franchise law allowed Jani-King and the franchisees to agree on a formula for calculating compensation, even if the franchisees were also the company’s employees, wrote U.S. District Judge Denise Cote of the Southern District of New York, who sat by designation.

Cote was joined by Circuit Judge Steven Menashi.

Circuit Judge Guido Calabresi in dissent said the panel should have asked the Connecticut Supreme Court to decide the threshold issue of what standard should be used to determine whether workers are a franchisor’s employees under state law.

The case is Mujo v. Jani-King International, 2nd U.S. Circuit Court of Appeals, No. 20-111.

For the plaintiffs: Shannon Liss-Riordan of Lichten & Liss-Riordan; Richard Hayber of Hayber McKenna & Dinsmore

For Jani-King: Aaron Van Oort of Faegre Drinker Biddle & Reath

Read more:

2nd Circ could kick janitors’ classification row to Conn. top court

10th Circuit revives DOL’s claims that janitors are franchise firm’s employees

3rd Circuit approves class cert of Jani-King franchisees in wage row

9th Circuit says Jan-Pro must face misclassification claims under Dynamex test

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