From JDSupra, Janet Barsky and Richard J. Reibstein discuss a case in which a franchise agreement contained a high degree of control and led a three-judge panel of the Third Circuit to support a decision to certify the case as a class action. Janet and Richard write:
The Third Circuit looked at the franchise agreement and the policy and training manuals that Jani-King prepared and found that the following provisions in those documents reflected a high degree of direction and control over the manner in which the cleaners performed their day-to-day tasks:
- how frequently the cleaning franchisees must communicate with customers
- the manner in which franchisees must address customer complaints
- the locations where franchisees may solicit business
- the clothing that cleaners must wear
- the types of records cleaning franchisees must maintain
- the way franchisees may advertise
- when franchisees must inform the franchisor of vacations
- how quickly the cleaners must respond to the franchisor
- the control Jani-King had over work assignments
- Jani-King’s right to inspect the cleaners’ work
- the franchisor’s right to change the policies and procedures
- Jani-King’s right to terminate the franchise agreement at any time.
The court said it was not deciding the merits of the case, but it held that the above provisions in the documents prepared by Jani-King, which covered all of the members of the proposed class, supported the district court’s decision to conditionally certify the case as a class action.
The Lesson from Jani-King – and What To Do, With Caveats
The district court and Third Circuit’s reliance on the very documents created by Jani-King is a wake-up call to all companies that use ICs or offer franchises to individuals: The form of your agreements can be the main evidence used by plaintiffs’ class action lawyers in IC misclassification lawsuits, which are becoming increasingly prevalent. What should Pennsylvania companies do if they use ICs? Make sure your IC relationships are properly structured, documented and implemented consistent with IC and labor laws in the states where the business operates.