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Northern District of California Holds That Jani-King Is Not “Employer” of Franchisees

March 27, 2012

By Shane D. Gosdis*

The District Court for the Northern District of California recently pushed back against the recent tide of franchisee friendly employer/employee decisions.  The case involved claims by four Spanish speaking franchisees against Jani-King of California, Inc. (”Jani-King”).  The franchisees originally filed their case as a putative class action, but the District Court refused to certify the class.

The complaint asserts fourteen (14) causes of action, including causes of action for statutory fraud under the California Code, labor code claims, breach of contract claims, and breach of good faith and fair dealing claims.  Jani-King asserted counterclaims for breach of contract, tortious interference with contract, and tortious interference with prospective economic relations.  Jani-King moved for summary judgment on all of the franchisees’ claims and also moved summary judgment on its counterclaims.

The District Court granted summary judgment on the franchisees’ labor code claims.  It held that “Jani-King did not exercise sufficient control over Plaintiff’s to render them employees.”  The Court relied on the fact that the franchisees had discretion to hire, fire, and supervise employees; had the right to decline accounts; purchased their own cleaning supplies; could bid on their own accounts; and decided when to service the accounts.  The fact that Jani-King, among other things, “collected payments directly from customers and then remitted ‘what resembles a paycheck to workers’” was not enough to convince the Court that Jani-King controlled the franchisees.

This holding is good news for franchisors hoping that the recent Coverall decision is not adopted by other courts.

The District Court also granted summary judgment on the franchisees’ fraud claims.  The Court held that the “alleged omissions and oral misrepresentations are directly contradicted by written agreements received and signed by the Plaintiffs.  Accordingly, evidence of these misrepresentations is barred by the parol evidence rule.”  The District Court held that the fraud exception to the parol evidence rule did not apply because the “alleged oral promises directly contradict the terms of a written agreement.”

It was not, however, a complete victory for Jani-King.  The District Court is allowing the following claims/issues to proceed to trial:  (1) whether Jani-King breached the franchise agreement; (2) whether Jani-King breached the implied covenant of good faith and fair dealing; and (3) whether Jani-King violated California’s unfair competition law by engaging in unfair business practices.

You can see a copy of the summary judgment order here.

On February 16, 2012, the District Court granted the franchisees’ Motion for Certificate of Appealability so we are not going to see this go to trial for quite a while.

The franchisees are represented by:  James C. Sturdevant and Whitney Stark of the Sturdevant Law Firm, Hillary Schwab and Shannon Liss-Riordian of Lichten & Liss-Riordan, P.C., Jennifer Abby Reisch and Mark Andrew Talamantes of Talamantes Villegas Carrera, LLP, Monique Olivier of Duckworth Peters Lebowitz Olivier, LLP.

Jani-King is represented by:  Emily L. Maxwell and Seth Benjamin Herring of Howrey, LLP, and Aaron Van Oort, Benjamin Kneeland Riley, Christopher J. Diedrich, Eileen M. Hunter, and Kerry L. Bundy of Faegre Baker Daniels, LLP.

Juarez, et al., v. Jani-King of California, Inc., et al., in the United States District Court for the Northern District of California, Case No. 3:09-cv-03495.

Shane D. Gosdis is a business and franchise litigation attorney located in Salt Lake City, Utah.  He handles business and franchise disputes in state and federal courts throughout the United States.  He is admitted to practice in both Utah and Arizona.

Posted in Breach of Contract, Class Action, Covenant of Good Faith and Fair Dealing, Franchisee Training, Fraud, Trade Secrets and Unfair Competition.

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