Mujo v. Jani-King Int'l, Inc.

• Decision Date: 09 September 2021
• Docket Number: August Term, 2020,Docket No. 20-111
• Citation: 13 F.4th 204
• Parties: Simon MUJO and Indrit Muharremi, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. JANI-KING INTERNATIONAL, INC., Jani-King Inc., and Jani-King of Hartford, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

13 F.4th 204

Simon MUJO and Indrit Muharremi, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.JANI-KING INTERNATIONAL, INC., Jani-King Inc., and Jani-King of Hartford, Inc., Defendants-Appellees.

Docket No. 20-111

August Term, 2020

United States Court of Appeals, Second Circuit.

Argued: June 2, 2021

Decided: September 9, 2021

SHANNON LISS-RIORDAN (Richard Hayber, on the brief), Lichten & Liss-Riordan, P.C., Boston, MA, for plaintiffs-appellants.

AARON D. VAN OORT (Kerry L. Bundy, Larry E. LaTarte, on the brief), Faegre Drinker Biddle & Reath, LLP, Minneapolis, MN, for defendants-appellees.

Before: Calabresi and Menashi, Circuit Judges, and Cote, District Judge.^*

JUDGE CALABRESI dissents from the Court's opinion, and files a dissenting opinion.

Cote, District Judge:

Defendants-Appellees Jani-King International, Inc., Jani-King, Inc., and Jani-King of Hartford, Inc. ("Jani-King") are franchisors of commercial cleaning services. Jani-King requires its franchisees to pay a fee to acquire a Jani-King franchise. Its customers then pay Jani-King for cleaning services provided by its franchisees, and Jani-King deducts other fees from the payments made by customers before it pays its franchisees. Plaintiffs-Appellants Simon Mujo and Indrit Muharremi ("Appellants") sued Jani-King on behalf of a class of current and former Jani-King franchisees in Connecticut, alleging that this arrangement violated Connecticut law.

The Appellants contend that Jani-King misclassified its franchisees as independent contractors rather than employees of Jani-King. As employees, they contend that Jani-King's deductions from customer revenue were made in violation of the Connecticut Minimum Wage Act, Conn. Gen. Stat. § 31-71e, and that Jani-King's collection of franchise fees unjustly enriched Jani-King. Connecticut's anti-kickback statute, Conn. Gen. Stat. § 31-73, prohibits an employer from charging an employee fees as a condition of securing or continuing in employment, and the Appellants reason that Jani-King was unjustly enriched by collecting fees in violation of this statute. The district court (Bolden, J .) granted Jani-King's motion to dismiss the Appellants’ Minimum Wage Act claim and, after discovery, granted Jani-King's motion for summary judgment on the Appellants’ unjust enrichment claim. For the following reasons, we affirm the judgment of the district court.

BACKGROUND

Jani-King is a national provider of commercial cleaning services that operates using a franchise model. Jani-King markets its cleaning services and contracts with customers to provide cleaning services in accordance with terms negotiated between Jani-King and its customers. Customers remit payment for the cleaning services to Jani-King. Under its franchise model, prospective franchisees initiate a business relationship with Jani-King by entering into a franchise agreement. Franchisees are assigned to service Jani-King's customers. Although a franchisee may choose to decline a customer offered by Jani-King, if a franchisee accepts a customer, it must accept the terms of the customer contract as negotiated by Jani-King. Jani-King deducts certain fees as agreed upon in each franchisee's agreement with Jani-King and remits the remainder of a customer's payments to the franchisee.

When servicing Jani-King customers, franchisees are required to comply with Jani-King's brand standards, which include the use of certain cleaning protocols and techniques specified by Jani-King. Franchisees and their work product are subject to inspection, and franchisees who do not pass muster may be subject to additional training or termination of their franchises. A Jani-King franchisee, however, is not obligated to perform assigned cleaning jobs herself: she may hire employees to perform the duties the franchisee agrees to accept from Jani-King. Franchisees may also trade customers with other Jani-King franchisees and may set their own work hours, subject to customer requirements. Finally, franchisees may sell their franchises to third parties, subject to certain conditions.

In order to acquire a Jani-King franchise and take on customers, a prospective franchisee must pay an initial franchise fee down payment and a finder's fee for each customer. Jani-King franchisees are also required to pay additional fees over the course of the franchise relationship. Jani-King collects these fees by deducting them from the revenue it receives from customers. The deducted fees include accounting fees, royalty fees, advertising fees, and insurance fees. All of the deducted fees are prescribed in the Jani-King franchise agreement.

The Appellants are Connecticut-based Jani-King franchisees. Appellant Simon Mujo was a Jani-King franchisee from 2007 to 2016. He paid $44,175 in initial fees to Jani-King in 2007 and paid other fees over the course of his franchise agreement. Appellant Indrit Muharremi is a current Jani-King franchisee. He paid $16,250 in initial fees at the commencement of his franchisee relationship with Jani-King in 2014, and Jani-King has continued to deduct other fees from its payments to Muharremi over the course of the franchise relationship.

On December 5, 2016, the Appellants filed a class action complaint in the District of Connecticut, and on February 9, 2017, the Appellants filed an Amended Complaint that pleaded Connecticut Minimum Wage Act and unjust enrichment claims. Jani-King moved to dismiss the Amended Complaint in its entirety on March 30, 2017. On March 31, 2018, the district court granted Jani-King's motion to dismiss the Connecticut Minimum Wage Act claim but denied Jani-King's motion to dismiss the unjust enrichment claim. Mujo v. Jani-King Int'l, Inc. , 307 F. Supp. 3d 38 (D. Conn. 2018). The Appellants then moved to certify a class, and on January 9, 2019, the district court granted the motion for class certification. On June 10, Jani-King moved for summary judgment on the remaining unjust enrichment claim, and on July 15, the Appellants filed a cross-motion for summary judgment. In an opinion of December 21, 2019, the district court granted Jani-King's motion for summary judgment. Mujo v. Jani-King Int'l, Inc. , 431 F. Supp. 3d 18 (D. Conn. 2019). This appeal followed.

DISCUSSION

The Appellants challenge both the district court's 2018 opinion granting Jani-King's motion to dismiss their Connecticut Minimum Wage Act claim and the district court's 2019 opinion granting summary judgment to Jani-King on the Appellants’ unjust enrichment claim. "We review a grant of summary judgment de novo , and in so doing, we construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor." Ketcham v. City of Mount Vernon , 992 F.3d 144, 148 (2d Cir. 2021). A district court decision granting a motion to dismiss is also reviewed de novo , with all factual allegations in a complaint accepted as true and all reasonable inferences drawn in favor of the plaintiff. City of New York v. Chevron Corp ., 993 F.3d 81, 89 (2d Cir. 2021).

1. Legal Framework

Under Connecticut law, "[s]ervice performed by an individual shall be deemed to be employment"¹ and therefore subject to provisions of Connecticut law governing the employer-employee relationship "unless and until it is shown" that

(I) such individual has been and will continue to be free from control and direction in connection with the performance of such service, both under his contract for the performance of service and in fact; and (II) such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and (III) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Conn. Gen. Stat. § 31-222(a)(1)(B)(ii). This provision is commonly called the "ABC test," and "unless the party claiming the exception to the rule that service is employment shows that all three prongs of the [ABC] test have been met, an employment relationship will be found." Sw. Appraisal Grp., LLC v. Adm'r, Unemployment Comp. Act , 324 Conn. 822, 155 A.3d 738, 745 (2017) (citation omitted).

When an economic relationship qualifies as employment under the ABC test, Connecticut law subjects an employer to a number of regulations. Two of these regulations are relevant to the Appellants’ claims. Under the Connecticut Minimum Wage Act,

[n]o employer may withhold or divert any portion of an employee's wages unless (1) the employer is required or empowered to do so by state or federal law, or (2) the employer has written authorization from the employee for deductions on a form approved by the commissioner, or (3) the deductions are authorized by the employee, in writing, for [certain health care expenses], or (4) the deductions are for contributions attributable to automatic enrollment [in certain retirement plans organized under state or federal law], or (5) the employer is required under the law of another state to withhold income tax of such other state. ...

Conn. Gen. Stat. § 31-71e. For the purpose of the Connecticut Minimum Wage Act, "wages" are defined as "compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation." Conn. Gen. Stat. § 31-71a(3). As interpreted by the Connecticut Supreme Court, this provision "provide[s] remedial protections for those cases in which the employer-employee wage agreement is violated." Mytych v. May Dep't Stores Co. , 260 Conn. 152, 793 A.2d 1068, 1072 (2002). It "does not purport to define the wages due; it merely requires that those wages agreed to will not be withheld for any reason." Id .

Connecticut also maintains an anti-kickback law, which prohibits employers from "demand[ing], request[ing...