Oklahoma federal court finds franchise owners are employees under FLSA

A recent order on summary judgment (dismissal without a trial) from the U.S. District Court for the Western District of Oklahoma is an important reminder that, when it comes to worker classification under the Fair Labor Standards Act (FLSA), the classification that the parties decide to use is not necessarily what matters.

Background

In United States Department of Labor v. Jani-King of Oklahoma, Inc., the Department of Labor (DOL) sued Jani-King of Oklahoma, Inc., a commercial cleaning company operating through a franchise model. Jani-King licenses its brand, goodwill, and business system to franchise owners, many of whom personally perform cleaning services, sometimes with help from family members or hired workers. 

On its request for summary judgment, the DOL argued the franchise owners were actually Jani-King employees under the FLSA and Jani-King was therefore required to maintain records of their wages, hours, and other employment information. Jani-King disagreed and instead argued its franchise owners were independent contractors operating their own businesses, making Jani-King a franchisor, not their employer.

To make its ruling, the court applied the FLSA’s “economic reality test.” The court considered the totality of the circumstances pertaining to six factors: 

• Jani-King’s control over the franchise owners; 

• The franchise owners’ opportunity for profit or loss; 

• Their investment in the business;