Home » Employee
Category Archives: Employee
W.D.Okla.: When a Franchise Model Looks Like Employment… Court Finds Jani-King Franchise Owners Are FLSA Employees
DOL v. Jani-King of Oklahoma, Inc.
A business may call someone a “franchise owner” or an “independent contractor,” but those labels do not control whether the person is an employee under the Fair Labor Standards Act (FLSA). In a recent decision involving Jani-King of Oklahoma, Inc., a federal court applied the FLSA’s “economic realities” test and concluded that the company’s janitorial franchise owners were employees—not independent contractors—for purposes of the Act’s recordkeeping requirements.
The ruling is an important reminder for employers using franchise, contractor, or other nontraditional work arrangements: the actual working relationship matters more than the contract title. It also offers employees a useful framework for evaluating whether they may have been misclassified.
Case Background
The U.S. Department of Labor sued Jani-King of Oklahoma (JKO), a regional franchisor that sells janitorial franchises and provides commercial cleaning services. The Department alleged that JKO improperly treated certain franchise owners as nonemployees and failed to meet the FLSA’s recordkeeping obligations.
JKO marketed cleaning services, entered into customer contracts in its own name, and retained ownership of customer accounts. It then offered franchise owners the opportunity to perform cleaning work for those accounts.
The franchise owners could sometimes perform the cleaning themselves, with family help, or through workers they hired.
Both sides sought summary judgment, meaning they asked the court to decide the case without a trial based on undisputed facts.
The Key Legal Question: Employee or Independent Contractor?
The central question was whether the franchise owners were economically dependent on JKO or were genuinely operating businesses of their own. The FLSA uses an expansive definition of employment, and courts look beyond contractual labels to the real-world relationship between the company and the worker.
The court used the familiar six-factor economic realities test:
• How much control the company has over the work;
• The worker’s opportunity for profit or loss through business decisions;
• The worker’s investment compared with the company’s investment;
• The permanence of the relationship;
• Whether the job requires specialized skill; and
• Whether the work is integral to the company’s business.
No one factor automatically decides employee status. Instead, the court must consider the total circumstances of the working arrangement.
Why the Court Found an Employment Relationship
- JKO Exercised Substantial Control
The court found that JKO exercised significant control over franchise owners’ access to work and the manner in which that work was performed. JKO controlled admission to and termination from the franchise system, chose which franchise owners would be offered customer accounts, and could remove them from accounts.
JKO also established cleaning schedules and performance standards, conducted quality-control inspections, and could remove a franchise owner when work did not meet its standards or a customer complained.
The court also emphasized that franchise owners were barred from performing commercial cleaning work for non-JKO customers during the franchise agreement and for two years afterward.
- Franchise Owners Had Limited Control Over Profit and Loss
Although franchise owners could control some expenses and occasionally seek additional work, JKO controlled the most important economic terms. It handled customer contracts, bidding, pricing, billing, and the payment process.
Customers paid JKO, which deducted fees and costs before paying the franchise owner the remaining amount.
As the court saw it, the franchise owners’ ability to increase profits through independent business initiative was restricted because they could not independently negotiate the price or scope of work with customers.
- Investment Did Not Outweigh the Other Evidence
The franchise owners did make investments, including franchise fees, equipment, supplies, payroll, taxes, and insurance.
But the court found that their investments were modest in comparison with JKO’s overall investment and noted that some costs could be deducted from the franchise owners’ compensation.
That economic structure resembled payment for labor more than an independently operated business, according to the court.
- The Relationship Was Long-Term and Exclusive
The franchise agreements lasted ten or twenty years, and franchise owners were effectively restricted from taking commercial cleaning work outside the JKO system.
The court concluded that this continuous and exclusive relationship supported employee status.
- Commercial Cleaning Did Not Require Specialized Skills
The court found that commercial cleaning can be demanding, but it did not require the type of specialized skill that typically points toward independent-contractor status.
JKO’s required training did not change that conclusion because the training developed basic job skills rather than a specialized professional trade.
- Cleaning Work Was Central to JKO’s Business
Finally, the court found that cleaning services were an integral part of JKO’s business. JKO marketed commercial cleaning, secured the customer accounts, negotiated and signed the cleaning contracts, and sometimes performed cleaning services directly when a franchise owner was unavailable.
That factor strongly supported treating the franchise owners as employees.
The Court’s Decision
The court granted summary judgment to the Secretary of Labor and denied JKO’s competing request for summary judgment.
Looking at the full relationship, the court held that the franchise owners depended on JKO for the opportunity to perform cleaning services and therefore were employees under the FLSA.
Because JKO was an employer under the FLSA, the court ruled that it had to comply with the statute’s recordkeeping requirements.
The court permanently barred JKO from failing to keep accurate records concerning employees’ wages, hours, and working conditions.
What This FLSA Misclassification Decision Means
This case does not mean that every franchise owner is automatically an employee. The analysis remains fact-specific, and the court acknowledged that JKO’s franchise owners had some features commonly associated with independent contractors, including the ability to reject contracts, own franchise entities, buy supplies, make an initial investment, and hire others.
But the decision reinforces several practical points:
For Employees and Workers
• A contract calling you a franchisee or independent contractor does not necessarily decide your legal status under the FLSA.
• Your degree of economic dependence matters, including who controls customer relationships, pricing, payment, schedules, and the ability to work for others.
• Employee status may affect rights to minimum wage, overtime compensation, and accurate payroll and hour records. The court noted that required FLSA records include payroll and records concerning minimum wage and overtime pay.
Bottom Line
The Jani-King decision illustrates a foundational principle of wage and hour law: an arrangement can be labeled a franchise opportunity, but still be treated as employment under the FLSA when workers are economically dependent on the company that provides and controls the work.
Workers who have been classified as independent contractors, franchisees, or business owners—but whose work is closely controlled by another company—should carefully review the actual terms and day-to-day reality of the relationship. Employers using these models should likewise assess their practices, classification decisions, and recordkeeping before a dispute or government investigation arises.
Click DOL v. Jani-King of Oklahoma, Inc. to read the full Order.
7th Cir.: Truck Driver Adequately Alleged He Was Misclassified as an Independent Contractor and Thus Entitled to Minimum Wage and Overtime
Brant v. Schneider National, Inc.
In this case, a truck owner-operator who contracted with an over the road hauling company contended that he was misclassified as an independent contractor, and thus entitled to overtime pay and minimum wages under the Fair Labor Standards Act (FLSA) and Wisconsin law (minimum wage). In addition, the plaintiff alleged that the contracts he signed with the defendant were unconscionable and thus defendant was unjustly enriched because it required him to bear overhead costs that should have been borne by defendant. Finally, plaintiff alleged that defendant violated the Truth in Leasing regulations, based on representations it made to him.
After the district court dismissed the case with leave to amend, the plaintiff amended his complaint, and the defendant moved to dismiss the amended complaint. The lower court again dismissed the complaint, but the second time with prejudice, and held that plaintiff’s claims were essentially barred by the very agreements he was challenging the legality of. On appeal, the Seventh Circuit reversed, noting that employee status is determined by application of the “economic reality” test and thus, reaffirmed the longstanding black letter law that FLSA rights may not abridged by contract.
While Schneider argued that this agreement established that the driver had a high degree of control over his work and that Schneider had therefore properly classified him as an independent contractor, the plaintiff argued that under the controlling test–the economic reality test–he was Schneider’s employee.
Under the FLSA, workers are employees when “as a matter of economic reality, [they] are dependent upon the business to which they render service.” As the Seventh Circuit noted, the economic reality test includes analyzing: (1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer’s business.
In reversing dismissal of the driver’s minimum wage claims, the Seventh Circuit concluded that the district court had “erred by giving decisive effect to the terms of [its] contracts,” when “what matters is the economic reality of the working relationship, not necessarily the terms of a written contract.”
For instance, while the operating agreement gave the driver the ability to choose the route and schedule to follow when delivering a shipment, the driver alleged that “the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.”
Similarly, while the operating agreement gave the driver the ability to choose which Schneider shipments to haul (and in theory, to select more shipments with higher profit margins), the driver alleged that he could not actually exercise this theoretical right to turn down shipments. The driver further alleged that, despite the terms of his contract, Schneider did not allow him to hire workers or haul freight for other carriers.
In light of these allegations, the Seventh Circuit concluded that the driver’s amended complaint had pled sufficient facts to allow a plausible inference that Schneider was his employer and he was its employee, and not an independent contractor. Thus, the Seventh Circuit reversed.
Click Brant v. Schneider National, Inc. to read the entire Opinion.
*** Andrew Frisch and Morgan & Morgan are actively handling and investigating similar cases regarding independent contractor misclassification. If you believe you have been misclassified as an independent contractor by a current or former employer, contact us for a free consultation at (888) OVERTIME [888-683-7846] today. ***
6th Cir.: Purportedly “Volunteer” Firefighters, Paid Per Call as Independent Contractors, Are “Employees” Under FLSA
Mendel v. City of Gibraltar
This case was before the Sixth Circuit, following the district court’s order granting the defendant’s motion for summary judgment. Although the case concerned the issue of whether the defendant-City met the prerequisite for FMLA coverage (number of employees), the issue considered by the Sixth Circuit was “purportedly volunteer firefighters who receive a substantial hourly wage for responding to calls whenever they choose to do so are “employees” or “volunteers” for purposes of the Fair Labor Standards Act (“FLSA”) and Family Medical Leave Act (“FMLA”).” The Sixth Circuit held that the firefighters at issue were employees rather than volunteers, such that the defendant met the number of employee requirement to trigger FMLA coverage.
The Sixth Circuit laid out the following facts relevant to its inquiry of whether the firefighters were properly deemed to be employees or volunteers:
The volunteer firefighters of Gibraltar must complete training on their own time without compensation. While they are not required to respond to any emergency call, they are paid $15 per hour for the time they do spend responding to a call or maintaining equipment. They do not work set shifts or staff a fire station; they maintain other employment and have no consistent schedule working as volunteer firefighters. The firefighters generally receive a Form–1099 MISC from the City. They do not receive health insurance, sick or vacation time, social security benefits, or premium pay. The City does have an employment application for the firefighters, and it apparently keeps a personnel file for each firefighter. A volunteer firefighter may be promoted or discharged. [The Plaintiff] introduced evidence below of what several other local communities pay their full-time firefighters. According to his wife’s affidavit, she and Mendel discovered that certain other communities in the area pay hourly wages ranging from approximately $14 to $17 per hour. Also, the City pays its own part-time Fire Chief $20,000 per year, and the Chief testified in his deposition that he “tr[ies] to work 20 hours per week at the [Gibraltar] fire station.” Based on this information, the Secretary of Labor notes in her amicus brief that if one assumes the Fire Chief works fifty-two weeks per year, he effectively earns $19.23 per hour.
After explaining that the FMLA’s definition of “employees” incorporates the FLSA’s definition, the Court then examined the issue under the FLSA. Holding that the firefighters were employees and not volunteers, the Court explained:
Here, it appears that the Gibraltar firefighters fall within the FLSA’s broad definition of employee. The firefighters are suffered or permitted to work, see
29 U.S.C. § 203(g), and they even receive substantial wages for their work.
This is not the end of our analysis, however. In 1986, Congress amended the FLSA to clarify that individuals who volunteer to perform services for a public agency are not employees under the Act. Section 203(e) now includes the following provision:
The term “employee” does not include any individual who volunteers to perform services for a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, if—
(i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and
(ii) such services are not the same type of services which the individual is employed to perform for such public agency.
Thus, the question becomes whether the Gibraltar firefighters fall within this exception to the FLSA’s generally broad definition of “employee.” Specifically, the question before us is whether the wages paid to the firefighters constitute “compensation” or merely a “nominal fee.” If the hourly wages are compensation, then the firefighters are employees under the FLSA. Conversely, if the wages are merely a nominal fee, then the firefighters are volunteers expressly excluded from the FLSA’s definition of employee.
The official regulations provide guidance at this juncture. The regulations define “volunteer” as “[a]n individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered.” 29 C.F.R. § 553.101(a); see also 29 C.F.R. § 553.104(a) (employing similar language). The regulations proceed to recognize, “Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof, for their service without losing their status as volunteers.” 29 C.F.R. § 553.106(a). The specific provision addressing nominal fees provides, in part, “A nominal fee is not a substitute for compensation and must not be tied to productivity. However, this does not preclude the payment of a nominal amount on a ‘per call’ or similar basis to volunteer firefighters.” 29 C.F.R. § 553.106(e). Finally, the regulations caution, “Whether the furnishing of expenses, benefits, or fees would result in individuals’ losing their status as volunteers under the FLSA can only be determined by examining the total amount of payments made (expenses, benefits, fees) in the context of the economic realities of the particular situation.” 29 C.F.R. § 553.106(f).
In the context of the economic realities of this particular situation, we hold that the hourly wages paid to the Gibraltar firefighters are not nominal fees, but are compensation under the FLSA. The firefighters do not receive “a nominal amount on a ‘per call’ or similar basis.” 29 C.F.R. § 553.106(e). Rather, they render services with the promise, expectation, and receipt of substantial compensation. See 29 C.F.R. §§ 553.101(a), 553.104(a). Each time a firefighter responds to a call, he knows he will receive compensation at a particular hourly rate—which happens to be substantially similar to the hourly rates paid to full-time employed firefighters in some of the neighboring areas. Essentially, the Gibraltar firefighters are paid a regular wage for whatever time they choose to spend responding to calls. These substantial hourly wages simply do not qualify as nominal fees. Cf. Purdham v. Fairfax Cnty. Sch. Bd., 637 F.3d 421, 433–34 (4th Cir.2011) (holding that a School Board’s payment of a fixed stipend to a golf coach was a nominal fee where: (1) the stipend amount did not change based on either how much time and effort the coach expended on coaching activities or how successful the team was; and (2) the approximate hourly rate to which the coach’s stipend could be converted was only a fraction (less than¼) of the hourly wage he received as a full-time security assistant employed by the School Board).
Notably, the Supreme Court has held that those who “work in contemplation of compensation” are “employees” within the meaning of the FLSA, even though they may view themselves as “volunteers.” Tony & Susan Alamo Found., 471 U.S. at 300–02, 306, 105 S.Ct. 1953. Despite the fact that the Gibraltar firefighters are referred to as “volunteers,” the inescapable fact nevertheless remains that they “work in contemplation of compensation.” Thus, the Gibraltar firefighters are “employees” and not “volunteers” within the meaning of the FLSA. See Krause v. Cherry Hill Fire Dist. 13, 969 F.Supp. 270, 277 (D.N.J.1997) (“In view of the fact that the plaintiffs [firefighters] both expected and received hourly compensation, in an amount greater than a ‘nominal’ fee, it is clear that plaintiffs were not volunteers….”).
Finally, the Court rejected the defendant’s contention—apparently adopted by the court below, that the firefighters were not “employees” under the FLSA, because they fell within the purview of 207(y).
Thus, the Court concluded “under the relevant authority and the facts of this case, we are constrained to hold that, simply put, the substantial wages paid to these firefighters constitute compensation, not nominal fees, which makes the Gibraltar firefighters employees, not volunteers, for purposes of the FLSA and FMLA.”
Click Mendel v. City of Gibraltar to read the entire Opinion. Click DOL Amicus Brief, to read the DOL’s Brief in support of the Plaintiff-Appellant, relied upon in part by the Court.
