The franchisee’s pay structure is based on a percentage system that compensates workers by the number of houses they clean. The employees claimed this structure violated California labor law. The employees alleged they did not receive minimum wage, overtime, or proper rest or meal breaks. The franchisor countered that it could not be liable because the franchisee, not the franchisor, was their employer.

Based on franchise joint employer precedent, the court explained that a franchisor will be liable as a joint employer if it retained or assumed the right of general control over relevant day-to-day operations at its franchise locations. The court found the alleged control, or right to control, in this case, which was pursuant to the franchise agreement and operations manual, was not enough to give the franchisor direct control over the employees’ hours, wages or working conditions. Moreover, the franchisee’s co-owner stated he never read the operations manual and was solely responsible for day-to-day management of employees. Further, the compensation scheme that was the basis of the employees’ labor allegations was developed by the franchisee outside of the system and was not part of the Merry Maids’ operations manual.

Next, the court analyzed the ostensible agency claim. In California, ostensible agency exists where: (1) a person deals with an agent with reasonable belief in the agent’s authority; (2) that belief is due to some act or neglect of the claimed principal, and (3) the relying party is not negligent.

Here, the employees claimed they had a reasonable belief that the franchisor was their employer based on the “uniform system of branding, trademark and promotion.” They cited evidence that the franchisor was also in the city of Fresno where the franchises were located and the employees worked and the employee handbooks, pay stubs, training materials and uniforms all said “Merry Maids.”

The franchisor countered by explaining that the handbooks given to employees read “Merry Maids of Fresno” and listed “Jeff and Jason Skadburg” as owners. In addition, the employees’ declarations in support of their class action stated that their work experience led them to conclude they were employed by the franchisee. Nevertheless, relying on franchisor joint employer ostensible agency case law, the court concluded that there was a genuine dispute about reasonableness of the employees’ beliefs that the franchisee was acting as an agent for Merry Maids.

Franchisees should make sure to comply with labor and employment laws in their state, which was the basis of the employees’ wage-hour claims. This is a case that will interest both franchisees and franchisors as it progresses.

Details: Cruz v. MM879, Inc., E.D. Cal.