Labor & Employment Law Daily Pennsylvania Jani-King franchisees get final approval of $3.7M misclassification settlement
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Friday, August 30, 2019

Pennsylvania Jani-King franchisees get final approval of $3.7M misclassification settlement

By Nicole D. Prysby, J.D.

The court approved the $3.7 million settlement; $1.2 million in attorney fees will be deducted from the settlement fund. Out of a class of approximately 290 members, 109 returned claim forms and five members requested to opt out of the settlement.

A federal district court in Pennsylvania has given final approval to a settlement between Jani-King and franchisees of its janitorial business under which Jani-King will pay $3.7 million. The class action arose out of claims that Jani-King misclassified the franchisees as independent contractors as opposed to employees and improperly deducted from their wages in violation of Pennsylvania wage law. The court approved deductions for $1.2 million in attorney fees, $30,000 in service awards to the named plaintiffs, and $16,757 in costs, leaving approximately $2.4 million in the settlement fund (Myers v. Jani-King of Philadelphia, Inc., August 26, 2019, Surrick, R.).

The two named plaintiffs, who performed services as franchisees in Jani-King’s janitorial business franchise system, filed suit on behalf of themselves and a class of similarly situated Pennsylvania franchisees. They alleged that the franchisor misclassified them as independent contractors and improperly deducted from their wages in violation of Pennsylvania’s Wage Payment and Collection Law (WPCL).

After certification on the WPCL claims was granted to a class of approximately 290 members, the Third Circuit affirmed the grant of class certification. The parties then entered into negotiations and a settlement was reached, under which Jani-King will pay $3.7 million. The district court gave preliminary approval to the settlement in May 2019.

Settlement agreement. The proposed settlement requires Jani-King to pay a total of $3.7 million to the plaintiffs in two installments of $1,850,000, the first of which is to be paid 60 days after the court grants final approval of the settlement. Jani-King agrees to pay the second installment on September 1, 2020. Each named plaintiff will receive $10,000 as an incentive payment, and the agreement provides for attorney fees in an amount not more than one-third of the settlement fund.

Business practices. The settlement also requires the franchisor to make changes to its business practices. Settling franchisees who wish to continue their business will receive a new franchise agreement, which will no longer contain post-termination noncompetition covenants, and the nonsolicitation period with respect to Jani-King accounts will be shortened to 12 months, according to the court. Further, franchisees may sign new business that they generate without paying fees to the franchisor.

The franchisor also agrees to make buyout payments to franchisees with monthly revenues less than $5,000 per month, at the franchisee’s option. Payment to each class member will be based on the franchise fees, franchise note payments, and insurance payments the franchisees have made since 2006—a distribution formula that has been approved by at least other two district courts handling class actions against Jani-King, the court noted. The average individual payout is anticipated to be approximately $10,872.

Rule 23(a) factors. The court granted final approval and granted the plaintiffs’ unopposed motion for attorney fees, expenses, and incentive payments. The court briefly reviewed Rule 23(a) factors, stating that numerosity is met with a class of 288 members, and commonality is met through the common question of whether and to what extent Jani-King controlled or directed its franchisees. Typicality is met because the named plaintiffs’ claims arise out of the same policies and practices as the claims of other members of the settlement class. The named plaintiffs adequately represent the interests of the class as well.

Rule 23(b) factors. Similarly, Rule 23(b) factors are met; every class member is seeking the same type of relief based on the same legal claims against Jani-King, and the cost of individual claims would exceed any likely recovery. No class members objected to the proposed settlement, and only five class members requested exclusion.

Rule 23(e) factors are also met. Denial of the settlement would extend litigation that has already gone on for 10 years and there were no objections to the settlement. Discovery was completed prior to settlement negotiations, and plaintiffs face serious risks if they proceed to trial. The settlement is reasonable, as it represents a recovery to plaintiffs of between 20 percent and 39 percent of the maximum damages’ calculations.

Attorneys’ fees. The plaintiffs requested $1.2 million in attorneys’ fees, $30,000 in service awards to the three named plaintiffs, and $16,757 in costs. The court granted the request, leaving approximately $2.4 million in the settlement fund to be distributed to the 109 class members who returned settlement claim forms. The court based the evaluation of the attorney fee award on a percentage-of-recovery method and concluded that one-third is reasonable in comparison to other awards. The lodestar crosscheck (using a lodestar multiplier of 1.09) also supports the award.

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