Williams v. Jani-King of Phila. Inc.

• Decision Date: 21 September 2016
• Docket Number: No. 15–2049,15–2049
• Citation: 837 F.3d 314
• Parties: Darryl Williams; Howard Brooks v. Jani–King of Philadelphia Inc. ; Jani–King Inc.; Jani–King International Inc., Appellants
• Court: U.S. Court of Appeals — Third Circuit

837 F.3d 314

Darryl Williams; Howard Brooks

v.Jani–King of Philadelphia Inc. ; Jani–King Inc.; Jani–King International Inc., Appellants

No. 15–2049

United States Court of Appeals, Third Circuit.

Argued January 20, 2016

Filed: September 21, 2016

Kerry L. Bundy, Esq., Eileen M. Hunter, Esq., Aaron D. Vanoort, Esq. [ARGUED], Faegre Baker Daniels, 90 South 7th Street, 2200 Wells Fargo Center, Minneapolis, MN 55402, Counsel for Appellants

Jonathan N. Solish, Esq., Bryan Cave, 120 Broadway, Suite 300, Santa Monica, CA 90401, Counsel for Amicus Appellant International Franchise Association

David J. Cohen, Esq., 604 Spruce Street, Philadelphia, PA 19106, Shannon Liss–Riordan, Esq. [ARGUED], Adelaide Pagano, Esq., Lichten & Liss–Riordan, 729 Boylston Street, Suite 2000, Boston, MA 02116, Counsel for Appellees

Before: FISHER, CHAGARES and COWEN, Circuit Judges.

OPINION OF THE COURT

FISHER

, Circuit Judge.

Disputes about whether workers are properly classified as employees or independent contractors are a classic and reoccurring issue in American law. This case presents such a dispute. Jani–King,¹ the world's largest commercial cleaning franchisor, classifies its franchisees as independent contractors. Two Jani–King franchisees, Darryl Williams and Howard Brooks, assert that they are misclassified and should be treated as employees. On behalf of a class of Jani–King franchisees in the Philadelphia area, Brooks and Williams seek unpaid wages under the Pennsylvania Wage Payment and Collection Law (WPCL), 43 Pa. Stat. §§ 260.1–260.12. The District Court granted the Plaintiffs' motion for class certification. In this interlocutory appeal under Federal Rule of Civil Procedure 23(f)

, we consider whether the misclassification claim can be made on a class-wide basis through common evidence, primarily the franchise agreement and manuals. We hold that the claims in this case are susceptible to class-wide determination and that the District Court did not abuse its discretion by certifying the class.

I

A

Jani–King franchisees provide janitorial and other cleaning services for offices, restaurants, warehouses, and other commercial properties. Jani–King licenses its trademarks, goodwill, and cleaning system to its franchisees and provides franchisees with administrative, billing, and advertising support. To obtain a franchise, an individual must pass a background check, pay Jani–King an initial franchise fee of between $14,625 and $142,750, and sign the Jani–King franchise agreement. (App. 108–10.)

Jani–King requires new franchisees to meet several requirements before starting operations. A new franchisee must attend a 13–day training course and pass a test about Jani–King's safety and training manual, which is more than 450 pages long. A franchisee must also purchase cleaning equipment and insurance, both of which are offered directly by Jani–King, although a franchisee may select alternative sources. A franchisee must secure any needed licenses and permits.

Jani–King guarantees new franchisees a certain dollar amount in cleaning contracts for a set period. For a larger initial investment, Jani–King offers contracts with higher value and guarantees them for a longer period. Jani–King is responsible for obtaining new customers, and someone from Jani–King's sales office will meet with prospective customers to determine their cleaning needs and give them a quote. If a customer agrees to a cleaning services contract, the contract is between the customer and Jani–King. The franchisee is not a party. Jani–King asks franchisees whether they want to provide services under the contract. A franchisee may accept or reject the contract.

Jani–King exercises a significant amount of control over how franchisees operate. The Jani–King policies and procedures manual dictates when and how frequently franchisees must communicate with customers, how franchisees must dress when meeting customers, and what uniforms must be worn while performing cleaning work. (App. 9.) Franchisees must be able to respond to any messages within four hours at all times and must notify Jani–King in advance of any vacations and delegate all business decision-making authority to someone else while on vacation. (App. 9.) Any marketing materials must be approved by the Jani–King regional office, and franchisees are not permitted to advertise their individual phone numbers or have individual websites. (App. 11.) Franchisees must make a monthly report to Jani–King of all services and supplies invoiced and must keep accurate books and records, which Jani–King may audit. (App. 9.) Jani–King requires franchisees to maintain sufficient working capital. (App. 9.) Jani–King requires franchisees to perform cleaning services adequately and may inspect the premises serviced by the franchisee at any time. (App. 9–10.) Customer complaints must be handled in a prescribed manner and within a certain time frame.

Jani–King has numerous tools to ensure franchisees adhere to its requirements. Jani–King may charge a $50 complaint fee for failure to adequately address customer concerns. If the complaint is serious enough, the Jani–King regional office will address the problem and bill the franchisee for any response work it must do. (App. 10.) Jani–King may require franchisees to take remedial training. (App. 7.) Jani–King may reassign customer accounts for inadequate performance or failure to adhere to policies and procedures. (App. 10.) Ultimately, Jani–King may suspend any franchisee for failure to comply with its procedures and policies.

Jani–King invoices customers and controls billing and accounting. Jani–King subtracts all fees from the gross revenue and pays the remainder to the franchisee. The fees include a 10 percent royalty fee, a 2.5 percent accounting fee (although this fee is reduced for particularly large franchises), a 1.5 percent technology licensing fee, and a 1 percent advertising fee. (App. 111–12.) In addition, once the initial guaranteed business period expires, franchisees pay a finder's fee to Jani–King for all new customer accounts. Franchisees may solicit new business within certain parameters, but any new cleaning contract is between the customer and Jani–King, which then has sole control over the contract. (App. 7, 11.)

Franchisees have control over certain aspects of their business. While some franchisees do all cleaning work personally, others hire employees. Jani–King requires franchisees to keep certain employee documents and records, but franchisees otherwise have total control over hiring and firing employees.

There are approximately 300 Jani–King franchises in the Philadelphia area. The named plaintiffs, Darryl Williams and Howard Brooks, purchased Jani–King franchises in the Philadelphia area. Williams's and Brooks's franchises were small. Brooks never hired any employees and performed cleaning services for his franchise himself, with occasional help from his wife or friends. (App. 553.) Williams services one Jani–King account and performs the cleaning himself, although he paid an employee to help him for two months at one point. (App. 653.)

Franchisees have a wide range of business sizes—some have large businesses and many employees, and some have small businesses and no employees. For example, franchisee Charles Jones has 27 employees, including five supervisors, monthly gross revenue of $43,497.39 in February 2013, and total gross revenue since 2009 of $1.28 million. At the opposite end of the spectrum, Kadri Memedoski has no employees, $4,556.44 in monthly revenue for February 2013, and $500,000 total gross revenue since 2006. Jani–King presented other examples of franchisees with many employees, including Sulejuman Smanovski with 35 and Althea Lanier with 16. (App. 701–21.)

B

Williams and Brooks² filed suit on behalf of a class of about 300 Jani–King franchisees in the Philadelphia area in state court in 2009, asserting that Jani–King violated the WPCL. Jani–King removed the case to the District Court for the Eastern District of Pennsylvania and moved to dismiss. For reasons unclear from the record, it took the District Court three years to rule on the motion to dismiss, which it eventually granted in part and denied in part in December 2012. The Plaintiffs filed a motion for class certification, which the District Court granted. Jani–King petitioned our Court for leave to appeal under Federal Rule of Civil Procedure 23(f)

, and we granted permission for this appeal. The District Court stayed the case pending the outcome of this appeal.

II³

Class certification is appropriate when the prerequisites of Federal Rule of Civil Procedure 23

are met.⁴ The party seeking certification must prove, by a preponderance of the evidence, that each of the four conditions of Rule 23(a)

—numerosity, commonality, typicality, and adequacy—is met and that at least one of the provisions of Rule 23(b) is satisfied. Comcast Corp. v. Behrend , –––U.S. ––––, 133 S.Ct. 1426, 1432, 185 L.Ed.2d 515 (2013). We review a district court's class certification order for abuse of discretion. In re Hydrogen Peroxide Antitrust Litig. , 552 F.3d 305, 312 (3d Cir. 2008). A district court abuses its discretion if its decision “rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.” Id. (quoting Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 259 F.3d 154, 165 (3d Cir. 2001) ).

The District Court found that each of the Rule 23(a)

factors was met. Jani–King did not dispute numerosity before the District Court. It did argue to the District Court that the Plaintiffs failed to establish typicality and adequacy. The District Court explained at length why typicality and adequacy were satisfied (App. 12–20), and Jani–King did not challenge these rulings on appeal. Nor did Jani–King challenge the District Court's conclusion that the superiority requirement of Rule 23(b)(3) was met.

The issue on appeal is whether the Plaintiffs' claims are capable of...