A wage and hour case before the Ninth Circuit Court of Appeals, Vazquez v. Jan-Pro Franchising International, is the latest front in the joint employer battle.  In Vazquez, unit franchisees of a janitorial service system alleged that they were employees of the franchisor.  The District Court granted summary judgment to the Franchisor, based on a prior decision from the First Circuit.

On appeal, the Ninth Circuit first decided that the First Circuit decision—a class action–was not res judicata for the action before the District Court.  The reason was that the Vazquez plaintiffs allegedly were not “adequately represented” in the prior case.

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The next big issue was whether the California Supreme Court’s recent decision in Dynamex Ops. W. Inc. v. Superior Court, which adopted the “ABC Test” for whether workers are independent contractors or employees, applied retroactively.  The Dynamex question was huge.  As the Ninth Circuit noted, prior to Dynamex, the standard applicable to determining whether a franchisor is an employer of a franchisee was unsettled in California.

The prior employment test came from a case called Martinez v. Combs and set forth three alternative definitions of “to employ”:  (1) to exercise control over the wages, hours or working conditions, or (2) to suffer or permit to work, or (3) to engage the person to work.  The Ninth Circuit recognized that Jan-Pro franchisees did not qualify under prong 1 or 3 of the Martinez test.

But Prong 2 is where Dynamex comes into play.  Dynamex significantly expanded the definition of “suffer or permit” under California law by adopting the so-called ABC test.  Under this test, a hiring entity must establish three elements to disprove employment status:

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 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.

As the Ninth Circuit acknowledges, the ABC test is “exceptionally broad”.  I would add that Part B is exceptionally difficult for franchisors to meet.

As if the mere retroactive application and remand itself wouldn’t be enough to send a shiver down the spine of a franchise community, on remand, the Ninth Circuit further directed the District Court to apply Dynamex without regard to prior California cases respecting the “special features of the franchise relationship”.  The Appeals Court specifically stated that tests employed for vicarious liability in tort cases have “little to do” with wage cases and directed the District Court to ignore them.

But the Ninth Circuit didn’t stop there.  Instead, it highlighted for the District Court cases where courts applying the ABC test in other jurisdictions have found an employer-employee relationship between franchisors and unit franchisees.

These court developments bear close watch.  The shift of the battleground over the joint employer doctrine to the courts necessarily means that careful development of policy—as might be expected from the regulatory process—could get rushed, and judicial decisions may result that do not reflect the unique realities of the franchise model.