May 10, 2013 ... III. THE DISTRICT COURT ERRED IN CONCLUDING THAT JANITORIAL.
WORKERS AT JANI-KING ARE NOT EMPLOYEES BECAUSE THEY ...
No. 12-17759
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
ALEJANDRO JUAREZ, MARIA JUAREZ, MARIA PORTILLO, LUIS ROMERO Plaintiffs/Appellants, v. JANI-KING OF CALIFORNIA, INC.; JANI-KING INC.; JANI-KING INTERNATIONAL, INC., Defendants/Appellees
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA Case No. 09-3495 SC
BRIEF OF AMICUS CURIAE California Rural Legal Assistance Foundation, Centro Legal de la Raza, Chinese Progressive Association, La Raza Centro Legal, Maintenance Cooperation Trust Fund, National Employment Law Project, National Lawyers’ Guild—Labor and Employment Committee, and Worksafe, Inc. In Support of Reversal
Catherine K. Ruckelshaus National Employment Law Project 75 Maiden Ln., Suite 601 New York, NY 10038 (202) 285-3025 Attorneys for Amici Curiae
Eunice Hyunhye Cho National Employment Law Project 405 14th St. Suite 1400 Oakland, CA 94612 (510) 663-5707
CERTIFICATE OF INTERESTED PERSONS, CORPORATE DISCLOSURE STATEMENT, AND STATEMENT PURSUANT TO FRAP 29(C) Pursuant to Federal Rule of Appellate Procedure 29(c), amici curiae hereby provide the following disclosure statements: California Rural Legal Assistance Foundation, Centro Legal de la Raza, Chinese Progressive Association, La Raza Centro Legal, Maintenance Cooperation Trust Fund, National Employment Law Project, National Lawyers’ Guild—Labor and Employment Committee, and Worksafe, Inc. are all non-profit corporations that offer no stock; there are no parent corporations or publicly owned corporations that own 10 percent or more of this entity stock. Pursuant to Federal Rule of Appellate Procedure 29(c)(5), amici state that no party’s counsel authored the brief in whole or in part; no party’s counsel contributed money that was intended to fund preparing or submitting the brief; and no person other than amici curiae or their counsel contributed money that was intended to fund preparing or submitting the brief.
Dated:
May 10, 2013
Respectfully Submitted, By: _/S/ Catherine K. Ruckelshaus___________ Catherine K. Ruckelshaus, one of the attorneys for amici
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TABLE OF CONTENTS
STATEMENT OF INTEREST ..................................................................................1 SUMMARY OF ARGUMENT .................................................................................6 ARGUMENT .............................................................................................................9 I. ALLOWING DEFENDANTS SUCH AS JANI-KING TO EVADE LIABILITY FOR MISCLASSIFICATION AND BASIC LABOR PROTECTIONS ENSURES CONTINUED EXPLOITATION OF LOW-WAGE WORKERS. ............................................................................................................9 II. ALLOWING MISCLASSIFICATION OF JANITORIAL WORKERS AS “FRANCHISEES” WOULD ENABLE EVASION OF BASIC LABOR STANDARDS PROTECTIONS, AND IMPOSES SIGNIFICANT SOCIETAL COSTS, INCLUDING BILLIONS OF DOLLARS IN LOST STATE AND FEDERAL GOVERNMENT FUNDS. ................................................................13 III. THE DISTRICT COURT ERRED IN CONCLUDING THAT JANITORIAL WORKERS AT JANI-KING ARE NOT EMPLOYEES BECAUSE THEY ARE LABELED “FRANCHISEES.” ............................................................................17 A. California’s Labor and Employment Protections Are Remedial in Nature and Broadly Apply to Workers. .........................................................................17 B. California Broadly Defines “Employ” to Require Labor Standards Compliance by Entities Who “Control,” “Suffer or Permit to Work,” or to “Engage” for Work. ...........................................................................................19 C. California Determines Whether an Individual Is an Employee Covered by State Labor Law Protections Through a Multi-Factor Test. .............................21 D. When Determining Whether A Worker Subject to a Franchise Agreement Is An Employee, Courts Examine The Relevant Labor or Employment Statutes, Not Agency Law Principles. ..............................................................................24 IV. CONCLUSION ..................................................................................................26
TABLE OF AUTHORITIES CASES Antenor et al. v. D&S Farms, 88 F.3d 925 (11th Cir. 1996) ...................................20
Awuah v. Coverall N. Am., Inc., 707 F. Supp. 2d 80 (D. Mass. 2010) ....................24
Cislaw v. Southland Corp., 4 Cal App. 4th 1284 (Cal. Ct. App. 1992) ............. 7, 23
Cmty for Creative Nonviolence v. Reid, 409 U.S. 730 (1989).................................19
Coverall N. Am., Inc. v. Comm’r of Div. of Unemployment Assist., 447 Mass. 852 (Mass. 2006) .........................................................................................................25
De Giovanni v. Jani-King, Int'l, Inc., 262 F.R.D. 71 (D. Mass. 2009)....................25
Hayes v. Enmon Enterprises, LLC, No. 3:10-CV-00382, 2011 WL 2491375 (S.D. Miss. Jun. 22, 2011) ..............................................................................................25
Indus. Welfare Comm’n v. Superior Ct., 27 Cal. 3d 690, 702 (Cal. 1980)....... 18, 21
Kerr’s Catering Service v. Dep’t of Indus. Rel’n, 57 Cal. 2d 319, 325-26 (Cal. 1962) .....................................................................................................................18
Martinez v. Combs, 49 Cal. 4th 35 (2010) ................................................ 8, 9, 17, 19
Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094, 1103 (Cal. 2007) ...18
Narayan v. Eagle Freight Sys., Inc., 616 F.3d 895, 900 (2010) ................... 8, 21, 24
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Reese v. Coastal Restoration and Cleaning Serv., Inc., No. 1:10-CV-0036, 2010 WL 5184841 (S.D. Miss. Dec. 15, 2010) .............................................................25
S.G. Borello & Sons, Inc. v. Dep’t of Indust. Rel’n, 48 Cal. 341, 353 (1989).........22
Sec’y of Labor v. Lauritzen, 835 F.2d 1539, 1543 (7th Cir. 1987). ........................21
In re Trombley, 31 Cal. 2d 801, 809 (Cal. 1948).....................................................18
OTHER AUTHORITIES Annette Bernhardt, et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities (2009) ...................................11 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2012-13 Edition, Janitors and Building Cleaners (2013) .................10 California Employment Development Department, Annual Report: Fraud Deterrence and Detection Activities (2009). ........................................................16 Lalith de Silva, et al., Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs (2000). .......................................................13 Sarah Leberstein, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries (2011) .........................................15 National Safety Council, Cleaning Up Safely: Janitors and Cleaners Face Multiple Hazards (2013) .....................................................................................................10
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Treasury Inspector General for Tax Administration, While Actions Have Been Taken to Address Worker Misclassification, and Agency-Wide Employment Tax Program and Better Data Are Needed (2009)......................................................14 U.S. Department of Labor, UI Budget: Trust Fund Loans, http://workforcesecurity.doleta.gov/unemploy/budget.asp#tfloans .....................16 U.S. General Accounting Office, Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention (2009). ................................................................................................14 U.S. General Accounting Office, Employment Arrangements: Improved Outreach Could Help Ensure Proper Worker Classification (2006) ...................................13 David Weil, Market Structure and Compliance: Why Janitorial Franchising Leads to Labor Standards Problems (2011) ...................................................................12 LEGISLATIVE MATERIALS 156 Cong. Rec. S7135-01, S7136 (daily ed. Sept. 15, 2010). .................................14 LAW REVIEW AND JOURNAL MATERIALS Cynthia Estlund, Rebuilding the Law of the Workplace in an Era of SelfRegulation, 105 Colum. L. Rev. 319 (2005). .......................................................10
Bruce Goldstein, et al., Enforcing Fair Labor Standards in the Modern American Sweatshop: Rediscovering the Statutory Definition of Employment, 46 UCLA L. Rev. 983 (1999) ....................................................................................................20
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Amici curiae California Rural Legal Assistance Foundation, Centro Legal de la Raza, Chinese Progressive Association, La Raza Centro Legal, Maintenance Cooperation Trust Fund, National Employment Law Project, National Lawyers’ Guild—Labor and Employment Committee, and Worksafe, Inc. (collectively, “amici”) submit this brief in support of plaintiffs-appellants Alejandro Juarez, Maria Juarez, and Maria Portillo.1
STATEMENT OF INTEREST
Amici are non-profit community-based or advocacy organizations that engage in a range of legal and policy advocacy, community education, and support and referrals for legal action for low-wage and immigrant workers in California. Amici have a strong interest in the present case because of the potential impact on workers subject to Jani-King’s practices and those of similar janitorial companies, and its potential impact on the ability of low-wage workers to vindicate their rights under California labor laws. California Rural Legal Assistance Foundation (“CRLAF”) is a non-profit California organization established to provide legal services to low-income 1
Amici file this brief with the consent of all parties. Amici thus file this amicus curiae brief without a motion for leave to file, pursuant to Fed. R. App. P. 29(a), which permits timely filing without leave of the Court if all parties consent to the filing of the brief.
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individuals and families in California. CRLAF advocates have extensive experience and nationally recognized expertise in the interpretation of California wage and hour laws. CRLAF represents low-income families in rural California and engages in regulatory and legislative advocacy that promotes the interests of low-wage workers. Since 1986, CRLAF has recovered wages for thousands of workers. These workers have been subjected to a variety of schemes intended to defraud them of minimum wages, contract wages, overtime wages, and in some circumstances all wage owed. Centro Legal de la Raza (Centro Legal) was founded in 1969 to provide culturally and linguistically appropriate legal aid services to predominantly Spanish-speaking residents of the greater Bay Area. Through legal services clinics, Centro Legal assists approximately 9,000 clients annually, providing advice, referrals, and representation in court in the areas of housing, employment, family, consumer protection, immigration, and support to survivors of domestic violence. Approximately 600 of those clients each year face employment-related problems. Centro Legal’s employment practice focuses on assisting workers who face wage theft, including denial of regular wages, overtime wages, and rest and meal periods. As a result, the outcome of this matter is of considerable interest to this organization and to the hundreds of wage and hour claimants it assists.
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Founded in 1972, the Chinese Progressive Association (CPA) educates, organizes and empowers the low income and working class immigrant Chinese community in San Francisco to build collective power with other oppressed communities to demand better living and working conditions and justice for all people. CPA’s Workers Organizing Center (WOC) developed out of large-scale manufacturing worker organizing campaigns at the onset of the recent economic recession. To date, CPA has organized hundreds of workers to recover over $2.5 million dollars in back wages owed to them and to hold their former bosses accountable. Through these major campaigns, CPA worked closely with key legal and grassroots community based organizations. Founded in 1973, La Raza Centro Legal (La Raza) provides free legal services to the Latino immigrant community throughout the Bay Area of California. La Raza’s Worker’s Rights Unit represents hundreds of low-wage workers each year with wage and hour claims before the California Labor Commission as well as in state and federal court. The majority of La Raza’s clients work in the restaurant, retail, day labor, domestic worker, and janitorial industries where violations of the California Labor Code are commonplace. The Maintenance Cooperation Trust Fund (MCTF) is a California statewide watchdog organization working to abolish illegal and unfair business practices in the janitorial industry. The MCTF exposes unlawful operations, encourages
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accountability, promotes responsible business practices, and helps level the playing field in the interest of clients, employers, workers and the general public. Since its inception in 1999, the MCTF has assisted in the collection of more than $26 million in unpaid wages for more than 5,000 janitors working in many industries in California. Through its investigations, MCTF has found that janitorial companies often subcontract to skirt the law. This includes franchise agreements. In many situations, the main contractor or franchisor maintains substantial control over the sub-contractor or franchisee and subsequently over the employees. Illegal subcontracting insulates janitorial companies from liability for employment law infractions and frees them from the insurance and tax costs of having directlyemployed janitors. And because so many subcontractors are “here-today-gonetomorrow,” these burdens are usually passed on to the general public. The National Employment Law Project (NELP) is a non-profit legal organization with nearly 40 years of experience advocating for the employment and labor rights of low-wage and unemployed workers. NELP seeks to ensure that all employees, and especially the most vulnerable ones, receive the full protection of labor standards laws, and that employers are not rewarded for skirting those basic rights. NELP’s areas of expertise include the workplace rights of nonstandard workers under state and federal employment and labor laws, with an emphasis on wage and hour rights. NELP has litigated directly and participated as amicus in
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numerous cases and has provided Congressional testimony addressing the issue of employment and independent contractors under the Fair Labor Standards Act and state labor standards. The National Lawyers’ Guild was founded in 1937 as the first integrated national organization of lawyers in the United States. Based on the premise that the law should elevate human rights over property interests, the Guild currently consists of approximately 6,000 lawyers, legal workers and law students. Individually and on specific shared projects, members work nationally and internationally on a wide range of legal concerns, especially those impacting people who are socially and politically marginalized and disenfranchised. Labor and employment issues have been a central focus of the Guild's mission during its nearly seventy-year history. The Guild's Labor and Employment Committee has a long record of action on behalf of low wage and immigrant workers in particular, both as amicus and through strategic coordination, scholarship and advocacy. The members of the Labor and Employment Committee also provide direct representation to individual and organized workers in a variety of local, state, federal and international forums. Worksafe, Inc. is a California-based non-profit organization dedicated to promoting occupational safety and health through education, training, and advocacy. Worksafe advocates for protective worker health and safety laws and
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effective remedies for injured workers through the legislature and courts. Worksafe is also a Legal Support Center funded by the California State Bar Legal Services Trust Fund Program to provide advocacy, technical and legal assistance, and training to the legal services projects throughout California that directly serve California’s most vulnerable low-wage workers. Worksafe considers it vitally important that the millions of low-wage and immigrant workers who often toil long hours in harsh and hazardous work environments in California not be misclassified as independent contractors and consequently excluded from protections of occupational safety and health laws.
SUMMARY OF ARGUMENT In this case, low-wage janitorial workers Alejandro Juarez, Maria Juarez, and Maria Portillo seek to enforce their rights under California labor laws against Jani-King of California, Inc., Jani-King, Inc., and Jani-King International, Inc. (collectively, “Jani-King”). These janitorial workers, who paid thousands of dollars in fees for the opportunity to clean for Jani-King’s customers, were subject to JaniKing’s false promises about their hourly rate of pay, imposition of excessive fees to enter the workforce, and work practices undermining their ability to earn the promised rate of income. The workers worked long hours, were not paid overtime, and often earned less than the legal minimum wage due to deductions in pay made
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by Jani-King. Their paystubs were confusing, omitted information about hours, location, applicable rates of pay, and total wages earned, and failed to include other material information about pay and deductions made by Jani-King. However, JaniKing argues that it can evade responsibility for charging workers for their jobs, requiring workers to pay expenses, and failing to maintain basic labor standards as an employer because it has classified its employees as “franchisees.” Misclassification of workers to evade the protection of labor laws, including calling janitorial employees “franchisees,” raises key public policy concerns, particularly for the thousands of California janitorial workers subject to chronic abuse and exploitation. Jani-King has attempted to create a labor structure that would enable the company to charge workers to obtain a job, lower its labor costs, and avoid paying payroll taxes and other insurance premiums, while under-bidding its competitors to gain cleaning contracts. The cumulative impact of such misclassification is substantial. Federal and state governments have lost billions of dollars in unpaid funds; law-abiding employers feel pressure to concoct similar schemes in order to stay competitive; and millions of workers lack vital labor protections to which they are otherwise entitled. In doing so, Jani-King attempts to make an unfair end-run around California’s labor protections by designating its workers as “franchisees.” Citing to Cislaw v. Southland Corp., 4 Cal App. 4th 1284 (Cal. Ct. App. 1992), an agency
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law case involving no labor law claims, Jani-King argues that workers classified as franchisees may not be viewed as employees who enjoy the protection of California labor laws, because it did not control the workers “beyond that necessary to protect and maintain its interest in its trademark, trade name and goodwill.” Id. at 1296. However, this argument fails. California’s labor laws, intended to remedy abuse and to “prevent evasion and subterfuge,” are broadly conceived to protect workers, Martinez v. Combs, 49 Cal. 4th 35, 61 (2010) (quoting Cal. Drive-In Rest. Ass’n. v. Clark, 22 Cal. 2d 287, 303 (1943)), and have distinct statutory definitions and coverage tests that must be applied to any worker claiming violations of the California Labor Code. This Court has definitively concluded that under California law, “once a plaintiff comes forward with evidence that he provided services for an employer, the employee has provided a prima facie case that the relationship was one of employer/employee.” Narayan v. Eagle Freight Sys., Inc., 616 F.3d 895, 900 (2010) (citing Robinson v. George, 16 Cal. 2d 238 (Cal. 1940)). “Once the worker establishes a prima facie case, the burden shifts to the employer, which may prove, if it can, that the presumed employee was an independent contractor.” Id. (citing Christler v. Express Messenger Sys., Inc., 171 Cal. App. 4th 72, 83 (Cal. App. 2009). And in California, to “employ” is defined as “(a) to exercise control over the wages, hours, or working conditions or (b) to suffer or permit to work, or (c) to
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engage, thereby creating a common law employment relationship.” Martinez, 40 Cal. 4th at 64. Moreover, when considering whether individuals engaged in virtually identical franchising schemes are employees entitled to workplace protections, courts uniformly examine the relevant definition of “employee” under the state labor or employment code, not agency law principles. Here, the district court failed to apply the statutory tests developed under California law to determine whether the Jani-King workers are employees protected by state labor law protections. For these reasons, we urge the Court to reverse the district court and remand to allow the plaintiffs to make the case that they are employees subject to protection of California’s labor law protections.
ARGUMENT I. Allowing Defendants Such as Jani-King to Evade Liability for Misclassification and Basic Labor Protections Ensures Continued Exploitation of Low-Wage Workers. This case raises issues of critical importance for thousands of California janitorial and low-wage workers. The janitorial and cleaning service industry is a “chronically low-wage sector that, in many parts of the country, relies heavily upon undocumented immigrant labor and operates as a virtual outlaw in violation
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of immigration laws, tax laws, wage and hour laws, and other labor protections.”2 Janitorial workers are particularly vulnerable to dangerous working conditions, high workplace injury rates, and low pay. As the U.S. Department of Labor has noted, “[j]anitors and building cleaners have one of the highest work-related injury rates,” where workers are susceptible to cuts, bruises, and burns from occupational hazards such as machinery, tools, and dangerous chemicals. Janitorial workers also face high exposure to infectious diseases, and suffer from musculoskeletal injuries, slips, and falls on the job.3 Janitorial workers typically must work lengthy hours because of low industry wages. In 2010, the national median hourly wage for janitors and building cleaners was $10.68 per hour.4 The janitorial industry, moreover, is marked by significantly high rates of non-compliance with minimum wage, overtime laws, and other basic labor standards protections. A recent academic survey of low-wage workers found that at least 26 percent of building service and ground service workers had not
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Cynthia Estlund, Rebuilding the Law of the Workplace in an Era of SelfRegulation, 105 Colum. L. Rev. 319, 352 (2005). 3 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Janitors and Building Cleaners (2013), available at http://www.bls.gov/ooh/building-and-grounds-cleaning/janitors-and-buildingcleaners.htm; National Safety Council, Cleaning Up Safely: Janitors and Cleaners Face Multiple Hazards (2013), available at http://www.nsc.org/safetyhealth/Pages/312JanitorSafety.aspx#.UPeyJzkayfQ. 4 Bureau of Labor Statistics, supra note 3.
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received minimum wage payments, and 71 percent had not received overtime pay. Over half did not receive required meal breaks.5 Janitorial franchising schemes promulgated by firms like Jani-King enable this rampant non-compliance with basic labor standards. As Professor David Weil of the Boston University School of Management has observed of the janitorial industry, violations of basic labor law protections are integrally connected to the emergence of the franchising model. Such franchising arrangements uniquely seek to profit from and to control a janitor in the performance of his or her cleaning duties. Although janitorial workers clean clients’ facilities, the primary relationship remains between the client and the franchisor—in this case, Jani-King. In addition to describing how the so-called “franchise” structure of these major cleaning companies results in greater violations of employment laws, Professor Weil’s study identified a critical way in which so-called cleaning “franchises” are different from traditional franchise systems. In a typical franchise – such as a McDonald’s – the franchisor and the franchisee share a common interest in keeping their customers. But in the cleaning franchise industry, a franchisee’s loss of a cleaning customer presents an opportunity for more revenue for the franchisor, which can assign the customer to another franchisee, thereby realizing an additional “finder’s fee” while 5
Annette Bernhardt, et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities, 31, 34, 37 (2009), available at http://www.unprotectedworkers.org/index.php/broken_laws/index.
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continuing to enjoy the same revenue from the customer. This situation creates an inherent conflict of interest between alleged franchisors like Jani-King and their cleaning workers. As in this case, under a typical franchising arrangement promulgated by janitorial companies, revenues “flow first to the franchisor [company] and then back to the franchisee [janitor].”6 Economic modeling, moreover, suggests that the “a franchisee [janitor] cannot service the contracts provided by the franchisor [company] at the market prices prevailing in many cases and still comply with labor standards, without going into the red.”7 However, “this does not imply that such profits are not attainable for the franchisor.”8 In Professor Weil’s study, estimates of franchisor profitability, defined as operating income as a percent of gross revenues, would reach up to 41 percent for companies like Jani-King.9 Such a model is only sustainable if a steady stream of new janitors/franchisees is available to “replace those unable to make the business model work, allow[ing] franchising to persist (and benefit the franchisor.)”10 As a result, janitorial workers
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David Weil, Market Structure and Compliance: Why Janitorial Franchising Leads to Labor Standards Problems 3-4, 7-8 (2011), available at http://www.huizenga.nova.edu/ExecEd/ISOF/abstracts/abstracts2011/20_Weil.cfm. 7 Id. at 13. 8 Id. at 15 (emphasis in original). 9 Id. 10 Id.
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are left in debt, confused about their status with respect to the janitorial firm, and with few tools to ensure protection of basic labor standards. II. Allowing Misclassification of Janitorial Workers as “Franchisees” Would Enable Evasion of Basic Labor Standards Protections, and Imposes Significant Societal Costs, Including Billions of Dollars in Lost State and Federal Government Funds. Employment schemes like Jani-King that misclassify employees as “franchisees” pose serious concerns in today’s economy. This problem is growing. Employers increasingly misclassify employees, which denies them protection of workplace laws, robs unemployment insurance and workers’ compensation funds of billions of much-needed dollars, and reduces federal, state, and local tax withholding and revenues. Between February 1999 and February 2005, the number of workers classified as independent contractors in the United States grew by 25.4 percent.11 A 2000 study commissioned by the U.S. Department of Labor found that up to 30% of audited employers misclassified workers.12 As the United States Government Accountability Office (GAO) has concluded, “employers have economic incentives to misclassify employees as independent contractors because employers are not obligated to make certain financial expenditures for independent 11
U.S. General Accounting Office, Employment Arrangements: Improved Outreach Could Help Ensure Proper Worker Classification, GAO-06-656, App. III. Tbl.4 (2006) (showing changes in size of contingent workforce). 12 Lalith de Silva et al., Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs i-iv (2000), available at http://wdr.doleta.gov/owsdrr/00-5/00-5.pdf.
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contractors that they make for employees, such as paying certain taxes (Social Security, Medicare, and unemployment taxes), providing workers’ compensation insurance, paying minimum wage and overtime wages, or including independent contractors in employee benefit plans.”13 Federal and state governments suffer significant loss of revenues due to misclassification of workers in the form of unpaid and uncollectible income taxes, payroll taxes, and unemployment insurance and workers’ compensation premiums. Between 1996 and 2004, $34.7 billion of federal tax revenues went uncollected due to the misclassification of workers.”14 A 2009 GAO report estimated that independent contractor misclassification cost federal revenues $2.72 billion in 2006.15 The Internal Revenue Service’s (IRS) most recent estimates of misclassification costs are a $54 billion underreporting of employment tax, and losses of $15 billion in unpaid FICA taxes and unemployment insurance taxes.16 Misclassification of this magnitude exacts an enormous toll: researchers found that
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Id. at 4. 156 Cong. Rec. S7135-01, S7136 (daily ed. Sept. 15, 2010). 15 U.S. General Accounting Office, Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention (2009). 16 Treasury Inspector General for Tax Administration, While Actions Have Been Taken to Address Worker Misclassification, Agency-Wide Employment Tax Program and Better Data Are Needed (2009), available at http://www.treas.gov/tigta/auditreports/2009reports/200930034fr.pdf. 14
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misclassifying just one percent of workers as independent contractors would cost unemployment insurance trust funds $198 million annually.17 California’s treasury is losing hundreds of millions of dollars in unemployment insurance, workers’ compensation, and general income tax revenues due to worker misclassification.18 California has a registered employer community of more than 1.3 million employers that pay over $778 billion in wages annually.19 Employers, however, fail to report billions of dollars to state agencies—and random audits conducted by state investigations likely result in an undercount of violations and of unpaid taxes. In 2009, the California Employment Development Department (EDD) reported that employers failed to report or underreported $1.3 billion in wages, mostly due to misclassification; in the first two quarters of FY 2010-11 alone, California’s employers failed to report or underreported $2.3 billion.20 A 2009 California EDD study found that 29 percent of audited employers had misclassified workers, a figure amounting to $137 million in lost income taxes. A national evaluation found that employers in 17
De Silva, supra note 12, i-iv. Sarah Leberstein, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries (2011), available at http://www.nelp.org/page//Justice/2010/IndependentContractorCosts.pdf?nocdn=1. 19 Email from Greg Riggs, Deputy Director, Policy, Accountability, and Compliance Branch, California Employment Development Department, to Maurice Emsellem, National Employment Law Project, Feb. 13, 2012 (on file with authors). 20 Id. 18
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California underreport unemployment taxes at rates that far exceed most other states at 7.46 percent.21 Between 2006 and 2008, the number of unreported employees increased by nearly a third. During this three-year period, the EDD assessed a total of $137,563,940 in unpaid payroll taxes, charged $25,392,095 in labor code citations, and assessed $48,343,008 in employment fraud cases.22 The failure of employers to pay their fair share of unemployment taxes also places a severe burden on California’s unemployment trust fund and treasury at a time when the state can least afford to lose additional revenue. California is currently borrowing $9.6 billion from the federal government to pay state unemployment benefits and the state is paying over $300 million annually in federal interest payments alone. 23 Employers’ failure to report misclassified workers undoubtedly places added stress on an already limited trust fund. Likewise, Jani-King’s misclassification of its employees hurts low-wage workers and law-abiding businesses. Permitting such schemes to continue permits the wage standards floor to drop, and costs the states billions of dollars in lost payroll and tax revenue. 21
De Silva, supra note 12, at 60. California Employment Development Department, Annual Report: Fraud Deterrence and Detection Activities (2009), available at http://www.edd.ca.gov/pdf_pub_ctr/report2009.pdf. 23 U.S. Department of Labor, UI Budget: Trust Fund Loans, http://workforcesecurity.doleta.gov/unemploy/budget.asp#tfloans (last visited May 7, 2013). 22
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III. The District Court Erred in Concluding that Janitorial Workers at JaniKing are Not Employees Because They Are Labeled “Franchisees.”
A. California’s Labor and Employment Protections Are Remedial in Nature and Broadly Apply to Workers. For more than a century, California has recognized the fundamental importance of protecting workers and ensuring compliance with minimum labor standards. Like many other states “motivated by widespread public recognition of the low wages, long hours, and poor working conditions under which women and children labored,” California first enacted protective employment legislation in 1911, well before Congress enacted the federal Fair Labor Standards Act (“FLSA”) in 1938. Martinez, 49 Cal. 4th at 50, 54, 66 (2010). By 1913, California established its own Industrial Welfare Commission (“IWC”), which holds the authority to broadly investigate working conditions and enforce its wage orders with broad criminal, administrative and civil enforcement provisions. Id. at 54-56. Since 1913, California voters and the State Legislature have added to the IWC’s power by providing it with broader legislative, executive, and judicial authority and by expanding its jurisdiction to cover all employees in California. Id. at 55. California courts have long given special consideration to laws protecting workers, broadly interpreting statutory provisions due to the remedial nature of these laws. As the California Supreme Court noted in 1948, “[i]t has long been
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recognized that wages are not ordinary debts, that they may be preferred over other claims, and that, because of the economic position of the average worker and, in particular, his dependence on wages for the necessities of life for himself and his family, it is essential to the public welfare that he receive his pay when it is due.” In re Trombley, 31 Cal. 2d 801, 809 (Cal. 1948). Likewise, two decades later, the Court concluded that “[w]ages of workers in California have long been accorded a special status . . . . This public policy has been expressed in the numerous statutes regulating the payment, assignment, exemption, and priority of wages. . . . California courts have long recognized the public policy in favor of full and prompt payment of wages due an employee.” Kerr’s Catering Serv. v. Dep’t of Indus. Rel’n, 57 Cal. 2d 319, 325-26 (Cal. 1962). California courts further recognized that “in light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours, and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.” Indus. Welfare Comm’n v. Superior Ct., 27 Cal. 3d 690, 702 (Cal. 1980). See also Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094, 1103 (Cal. 2007) (“We have also recognized that statutes governing conditions of employment are to be construed broadly in favor of protecting employees.” (citations omitted)).
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B. California Broadly Defines “Employ” to Require Labor Standards Compliance by Entities Who “Control,” “Suffer or Permit to Work,” or to “Engage” for Work. Due to the remedial nature of its workplace laws, California has broadly conceived of the definition of employment to cover classes of workers who would otherwise lack protection. In California, “to employ” “has three alternative definitions. It means: (a) to exercise control over the wages, hours, or working conditions or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” Martinez, 49 Cal. 4th at 64. California’s tradition of expansively conceiving of the employment relationship reaches back to as early as 1916, when California’s IWC rejected the traditional common law understanding of employment in favor of this more expansive definition. Under the traditional common law doctrine of respondeat superior, a court inquired only whether an alleged employer had the “right to control the manner and means by which the product is accomplished” to establish an employment relationship purposes of tort liability. Martinez, 49 Cal. 4th at 57; Cmty for Creative NonViolence v. Reid, 490 U.S. 730, 751-52 (1989). This definition enabled courts to hold a master accountable as a tortfeasor or as the employer only where the alleged master had the right to control details of a servant’s work and the work was performed negligently. Id.
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Instead of this more restrictive common law definition of “employ,” however, California’s IWC broadly interpreted the term “employ” to mean “to engage, suffer, or permit to work.” Martinez at 57 (citations omitted). The “widely used ‘employ, suffer or permit’ standard reache[s] irregular working arrangements the proprietor of a business might otherwise disavow with impunity.” Id. at 58. This language likewise tracked the broader conception of “employ” in many states across the country. As originally conceived, under this “suffer or permit to work” definition of employment, business owners were to be held accountable where underage children worked or children of working age put in excessive hours, so long as the work was performed in or in connection with the owner’s business. This well-established definition of “employ” was designed to reach businesses that used middlemen to illegally hire and supervise children. Antenor et al. v. D & S Farms, 88 F.3d 925, 929 n.5 (11th Cir. 1996) (citing Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947)). This was true even where the business workers had used others—including labor contractors—to “employ” workers in the common-law sense.24 Indeed, such a broad standard was meant to “sweep in 24
By 1907, fourteen states already had on the books child labor laws containing the “suffer or permit to work” language, including Idaho, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New York, Oregon, Rhode Island, South Dakota, and Wisconsin. Many other states and territories used the “permit” standard in their child or women’s or other protective labor laws: Alabama, Arizona, California, Connecticut, Florida, Kansas, Maine, New Jersey, North Dakota, Oklahoma, Pennsylvania, Vermont, and Wyoming.
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almost any work done on the employer’s premises, potentially any work done for the employer’s benefit or with the employer’s acquiescence.” Sec’y of Labor v. Lauritzen, 835 F.2d 1539, 1543 (7th Cir. 1987). C. California Determines Whether an Individual Is an Employee Covered by State Labor Law Protections Through a Multi-Factor Test. This broad definition of employment is significant when determining whether a worker is an employee who is subject to protection of minimum labor standards. Under California law, when determining whether a worker is an employee, “once a plaintiff comes forward with evidence that he provided services for an employer, the employee has provided a prima facie case that the relationship was one of employer/employee.” Narayan v. Eagle Freight Syst., Inc., 616 F.3d 895, 900 (2010) (citing Robinson v. George, 16 Cal. 2d 238 (Cal. 1940)). “In light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.” Indust. Welf. Comm’n, 27 Cal. 3d at 702.
Bruce Goldstein, et al., Enforcing Fair Labor Standards in the Modern American Sweatshop: Rediscovering the Statutory Definition of Employment, 46 UCLA L. Rev. 983, 1036-37 (1999) (citing Twenty-Second Annual Report of the Commissioner of Labor, 1907: Labor Laws of the United States (1908)).
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For this reason, California courts have interpreted the state’s test to determine employment status with specific “consideration of the remedial purpose of the statutes, the class of persons intended to be protected, and the relative bargaining positions of the parties.” S.G. Borello & Sons, Inc. v. Dep’t of Indust. Rel’n, 48 Cal. 341, 353 (1989). Thus “the test for determining whether a person rendering service to another is an ‘employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposes of the protective legislation.” Id. When determining whether an employment relationship exists, California courts may examine “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Borello, 48 Cal. 3d at 350. However, California courts also examine other indicia of the employment relationship, including the right to discharge at will, without cause; whether the worker is engaged in a distinct occupation or business separate from the principal’s business; whether the work is done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal supplies the instruments or tools for the person doing the work; the method of payment, by time or by the job; whether or not the work is part of the regular business of the principal; and whether the parties believe they are creating an employment relationship. Id. at 350-51.
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The franchising test articulated in Cislaw v. Southland Corp., 4 Cal. App. 4th 1284 (Cal. App. 1992), is inapposite to this case. In Cislaw, the court addressed a completely different claim: a wrongful death action brought by parents of a child who was sold cigarettes by a 7-Eleven franchise. The parents brought a wrongful death action against Southland, the corporate franchisor of the 7-Eleven franchise, under an agency theory in a wrongful death action. There were no labor code claims at issue in Cislaw, and the court was not presented with the same legal question as in this case. Although the test to establish agency liability for tort claims is based in the common law test of respondeat superior, California has established a distinctive test when considering whether a worker is an employee subject to protection under the California Labor Code. Here, it is clear that Jani-King’s janitorial workers meet California’s test for employment under the California Labor Code claims they bring. Jani-King had the right to control and in fact exercised considerable control over its workers sufficient to create an employment relationship. Jani-King supervised the plaintiffs in their work, determined what specific cleaning tasks they were to perform, as well as the location, manner, means, schedule, and speed by which they needed to work. The work performed by the plaintiffs—janitorial services—is the heart of Jani-King’s business, and does not require specialized training or skill. Jani-King also specified the cleaning implements and chemicals that workers were required
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to use, and required the workers to purchase these materials directly from JaniKing. The plaintiffs received their payment not from the clients, but from JaniKing, who often deducted high administrative fees. Moreover, “[t]he label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.” Narayan, 616 F.3d at 904. D. When Determining Whether A Worker Subject to a Franchise Agreement Is An Employee, Courts Examine The Relevant Labor or Employment Statutes, Not Agency Law Principles. In this case, the district court erred in applying an agency law test designed to determine liability under tort law when determining whether Jani-King workers are employees who are subject to California labor law protections. When determining whether workers engaged in virtually identical janitorial franchising schemes are employees subject to workplace protections, courts have uniformly applied the test for the definition of “employee” under the relevant state labor or employment code, not agency law principles under tort law. For example, in Awuah v. Coverall N. Am., Inc., 707 F. Supp. 2d 80 (D. Mass. 2010), the court concluded that janitorial franchisees were employees under Mass. Gen. Law chap. 149, Section 148B, which provides the statutory test to determine whether a worker is an employee. Similarly, a federal district court also examined relevant state law definitions of “employee” when approving class certification and
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granting summary judgment for Jani-King franchisees bringing suit for violation of state labor and employment protections. De Giovanni v. Jani-King, Int’l, Inc., 262 F.R.D. 71 (D. Mass. 2009) (approving class certification); De Giovanni v. JaniKing, Int’l, Inc., No. 07-CV-10066 (D. Mass. June 6, 2012) (order granting summary judgment). The Massachusetts Supreme Court also concluded that janitorial franchise workers were employees eligible for state unemployment benefits, applying the state’s definition of “employee.” Coverall N. Am., Inc. v. Comm’r of Div. of Unemployment Assist., 447 Mass. 852 (Mass. 2006). See also Reese v. Coastal Restoration and Cleaning Serv., Inc., No. 1:10-CV-0036, 2010 WL 5184841 (S.D. Miss. Dec. 15, 2010) (applying the relevant “economic reality” test for employment in claim under the federal Fair Labor Standards Act in claim against janitorial franchisor). Cf. Hayes v. Enmon Enter., LLC, No. 3:10-CV00382, 2011 WL 2491375 (S.D. Miss. Jun. 22, 2011) (concluding that Jani-King franchisees are employees under the common law “right to control” test for employment in a tort law claim). In this light, the district court erred in applying an irrelevant agency law standard designed for tort law liability claims when considering whether California state labor and employment protections apply.
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IV.
Conclusion
For the foregoing reasons, in additions to reasons set forth by PlaintiffsAppellants, amici urge this Court to reverse the ruling of the district court.
Respectfully submitted,
__/S/ Catherine K. Ruckelshaus__ Counsel for Amici Curiae Catherine K. Ruckelshaus National Employment Law Project 75 Maiden Lane, Suite 601 New York, NY 10038 (212) 285-3025 x 306
[email protected] Eunice Hyunhye Cho National Employment Law Project 405 14th St. Suite 1400 Oakland, CA 94612 (510) 663-5707
[email protected]
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CERTIFICATE OF COMPLIANCE
Pursuant to Federal Rule of Appellate Procedure 32(a)(7)(B), I hereby certify that this brief contains 5,634 words, excluding the portions exempted by Fed. R. App. P. 32(a)(7)(B)(iii), if applicable. This brief complies with the length limits set forth at Ninth Circuit Rule 32-4. The brief’s type size and type face comply with Fed. R. App. P. 32(a)(5) and (6). Date: May 10, 2013
__/S/ Catherine K. Ruckelshaus__ Catherine K. Ruckelshaus National Employment Law Project 75 Maiden Lane, Suite 601 New York, NY 10038 (212) 285-3025 x 306
[email protected] Counsel for Amici Curiae
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