Labor & Employment Law Daily Whether Dynamex applies retroactively in Jan-Pro franchisee suit certified to California high court
Thursday, September 26, 2019

Whether Dynamex applies retroactively in Jan-Pro franchisee suit certified to California high court

By Ronald Miller, J.D.

In view of the Ninth Circuit’s rejection of Jan-Pro’s argument that the doctrines of res judicata and law of the case bar the plaintiffs from contending they are employees under the ABC test, the question of whether Dynamex applies retroactively “could determine the outcome” of this appeal.

Following up on its previously announced course of action, the Ninth Circuit has certified to the California Supreme Court the question whether the decision in Dynamex Operations West, Inc. v. Superior Court applies retroactively. In Dynamex, the California high court adopted the ABC test for determining whether workers are independent contractors or employees under California wage orders (Vazquez v. Jan-Pro Franchising International, Inc., September 24, 2019, per curiam).

“Three-tier” franchising model. Jan-Pro licenses a system for marketing cleaning services to “regional master franchisees.” Regional master franchisees purchase franchises for exclusive operations in a given regional area. They, in turn, are franchisors to “unit franchisees.” Regional master franchisees advertise cleaning services within the geographic region, provide bids to potential customers, and process payments. They also offer “business and management services” to unit franchisees and invoicing.

Unit franchisees are given the option to accept or reject these bids and they perform actual cleaning under the Jan-Pro name. Unit franchisees are allowed to solicit their own accounts. After royalties and other fees are deducted for Jan-Pro and the regional master franchisor, the balance is remitted to the unit franchisee.

Jan-Pro is not a party to any contract with unit franchisees. Rather, Jan-Pro contracts with the master franchisors, who then contract with unit franchisees. Unit franchisees may hire their own employees and may act in individual or corporate capacities.

Misclassification claim. The plaintiffs in this action are former unit franchisees who purchased franchisees from two different regional master franchisors. This case began in 2008 as a class action in Massachusetts. The plaintiffs here, California residents, joined that action. It was alleged that Jan-Pro had developed a sophisticated “three-tier” franchising model to misclassify janitors as independent contractors and avoid paying minimum wages and overtime compensation. Eventually, the plaintiffs’ case was severed and sent to a California court.

Jan-Pro moved for summary judgment, contending that the California Supreme Court’s decision in Patterson v Domino’s Pizza, LLC provided the relevant standard for determining whether the plaintiffs should be considered employees of Jan-Pro. The plaintiffs, however, contended that Martinez v Combs provided the standard. “In the absence of controlling authority,” the district court applied the Martinez standard, with the gloss of Patterson. It granted summary judgment to Jan-Pro.

While the plaintiffs’ appeal was pending, the California Supreme Court decided Dynamex, adopting the ABC test. Under the ABC test, for a worker to be properly classified as an independent contractor, the hiring entity must establish that the worker meets three independent criteria: (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Retroactive application of Dynamex. On May 2, 2019, the Ninth Circuit issued an opinion, Vazquez v. Jan-Pro Franchising International, Inc., holding that Dynamex applies retroactively.

Now the Ninth Circuit has concluded that it is prudent to certify the question of Dynamex’s retroactively to the California Supreme Court for two reasons. First, in the now withdrawn opinion, the appeals court rejected Jan-Pro’s argument that the doctrines of res judicata and law of the case bar the plaintiffs from contending that they are employees under the ABC test. The court also rejected Jan-Pro’s contention that retroactive application would violate federal due process rights. Finally, the appeals court held that if Dynamex does apply, the district court’s reliance on Patterson and the “special features of franchise relationship” was misplaced. Accordingly, the question of whether Dynamex applies retroactively “could determine the outcome” of this appeal.

Second, in resolving the parties’ competing contentions, as a federal court sitting in diversity, the court’s role was “to approximate state law as closely as possible in order to make sure that the vindication of the state right is without discrimination because of the federal forum.” The question of Dynamex’s retroactive application has not been answered by the California Supreme Court. Given the potential importance of the retroactivity issue to California businesses and workers, and because the question is unsettled, the California Supreme Court, rather than the Ninth Circuit, should answer the certified question.

Withdrawn opinion. In a separate published order, the Ninth Circuit re-established the remaining holdings from the now-withdrawn opinion Vazquez v. Jan-Pro Franchising International, Inc.

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