Labor & Employment Law Daily Employees of Merry Maids franchisee advance wage claim against franchisor under agency theory, but not as joint employer
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Thursday, January 24, 2019

Employees of Merry Maids franchisee advance wage claim against franchisor under agency theory, but not as joint employer

By Marjorie Johnson, J.D.

A franchise agreement and operation manual were insufficient to establish that Merry Maids exercised sufficient control over a franchisee to create joint employer liability. There must be a showing that the franchisor had direct authority to control employees’ wages, hours, or working conditions.

Four home cleaners for a Merry Maids franchisee who brought a wage-hour class action alleging various violations of the California Labor Code failed to establish that Merry Maids and ServiceMaster Company could be liable as joint employers, ruled a federal district court in California ruled in partially granting the defendants’ motion for summary judgment. However, triable issues existed as to whether the companies could be liable under ostensible agency theory since the franchisee’s employees could have reasonably believed they worked for the larger organization due to “the uniform system of branding, trademark, and promotion” (Cruz v. MM879, Inc., January 16, 2019, Nunley, T.).

The employees worked for a Merry Maids franchisee with two locations in California. They brought this action alleging that in addition to the franchisee, they were jointly employed by the franchisee’s payroll administrator, Merry Maids, Merry Maids’ owner ServiceMaster, and Merry Maids’ general partner. The lawsuit asserted that defendants’ wage and hour policies—which included using a “percentage pay” scheme that compensated them based on houses cleaned—violated California law. Among other things, they alleged minimum wages and overtime violations and failure to permit rest and meal periods. At issue was the franchisors’ motion for summary judgment arguing that they could not be held liable as a matter of law.

Joint employer. In determining joint liability, the Supreme Court of California held in Martinez v Combs case that to “employ” means (1) “to exercise control over the wages, hours or working conditions,” (2) “to suffer or permit to work,” or (3) “to engage, thereby creating a common law employment relationship.” Subsequently, the state high court addressed joint liability in the context of a franchise relationship in Patterson v Domino’s Pizza, LLC, where the court found that “the imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility.” Rather, a franchisor will be liable as a joint employer “if it has retained or assumed the right of general control over the relevant day-to-day operations at its franchise locations.” Though the effect of Patterson on the Martinez framework was unclear, the parties agreed that Martinez was the proper standard and Patterson lent guidance as to the common law definition of employment in the franchisor context.

No “exercise of control.” Finding that the employees failed to establish the first Martinez prong, the court rejected their assertion that defendants exercised sufficient control by requiring strict adherence to the franchise agreement and retaining the right to terminate if the franchisee failed to adhere. In particular, the employees noted that Merry Maids had the right to inspect and audit the franchisee’s documents at the franchisee’s expense and retained the right to terminate the agreement if the franchisee “willfully violates” any provision of the agreement or “failed to adhere to any material specification, standard or operating procedure” prescribed by the franchisor.

The employees also highlighted certain aspects of the operation manual, including its instructions to franchisees on how to present a percentage-based compensation scheme to potential hires during interviews. The manual also required franchisees to subject new hires to a criminal background check, drug screenings, and eligibility verification and set forth procedures for new employee orientation, training programs, and staff meetings on standard operating procedures. The manual also set forth day-to-day procedures such as use of specified uniforms and cleaning kits and included a three-step disciplinary program.

Indirect control not enough. The court found that the indirect control created by the agreement and manual did not create employer liability since there must be a showing that the franchisor had direct authority to control employees’ wages, hours, or working conditions, and there was no evidence of such control here. Instead there was ample evidence to the contrary, including testimony from the franchisee’s co-owner and CFO that he never read the operations manual and was solely responsible for implementing the franchisee’s wage and hour practices. The employees also admittedly had zero contact with any of the defendants. Thus, the franchise agreement and operation manual, which constituted the entirety of their evidence as to defendants’ exercise of control, was “too thin to establish liability.”

No knowledge of violations. The employees also failed to show that the defendants were joint employer’s through actual knowledge of and power to prevent the wage-hour violations despite their reliance on a 2009 email in which Merry Maids informed its California franchisees of changes being implemented at its corporate locations to comply with California wage and hour laws. The email wasn’t sufficient to show knowledge of the franchisee’s compensation scheme as it appeared to be a generic letter sent to all California franchisees, regardless of whether they had made the recommended changes. The email also showed that Merry Maids understood that its franchisees used various forms of compensation schemes, which bolstered the conclusion that it did not exercise control over the wages, hours, or working conditions of its franchisees’ employees.

No employment relationship. Patterson clarified that a franchisor can become potentially liable for actions of the franchisee’s employees, “if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.” Though the employees argued that the franchising agreement and operation manual imparted the requisite “right to control,” the court disagreed. It noted that the franchisee declined to follow that compensation scheme, as made clear by its CFO’s testimony that he never read the operation manual and felt free to implement whatever compensation scheme he chose. The franchisee’s compensation scheme (which differed from that in the operation manual) was also set forth in its own handbook, which was written and implemented solely by the CFO and payroll administrator, without any input from Merry Maids. Courts have found no right of control when franchisees make such departures from a franchisor’s compensation policy.

Ostensible agent. However, triable issues existed as to whether the defendants could be liable under the “ostensible agency” theory since they presented sufficient evidence that Merry Maids created a reasonable belief in the minds of the franchisee’s employees that it was operating as an agent of the franchisor by “the uniform system of branding, trademark, and promotion.” They offered declarations stating that each reasonably believed she “worked for the larger Merry Maids organization that happened to have a location in Fresno” because each received employee handbooks, paystubs, training materials, and uniforms that bore the words “Merry Maids.” This evidence concerning the franchisor’s “pervasive branding” created a triable issue as to whether plaintiffs reasonably believed the franchisee was acting as an agent for Merry Maids.

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