Franchise Memorandum - Issue #270

Lathrop GPM

Second Circuit Affirms Dismissal of Franchisees’ Minimum Wage and Unjust Enrichment Claims -

A divided panel of the Second Circuit Court of Appeals has concluded that claims of improper wage deductions and unjust enrichment against a franchisor were properly dismissed because the plaintiffs agreed to deductions in exchange for valuable franchise rights. Mujo v. Jani-King Int’l, Inc., --- F.4th ---, 2021 WL 4096577 (2d Cir. June 2, 2021). The plaintiffs were current and former franchisees of Jani-King, a commercial cleaning service franchisor. Jani-King sources cleaning customers, who enter into service agreements with the franchisees. The customers pay Jani-King, who deducts agreed-upon franchise fees and transmits the remainder on to the franchisees. In the lawsuit, the franchisees alleged that this structure made them employees rather than independent contractors and that the franchise fee deduction constituted an improper withholding of wages under the Connecticut Minimum Wage Act and unjustly enriched Jani-King. After a lower court dismissed the statutory claim and granted summary judgment on the unjust enrichment claim, the franchisees appealed.

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