The janitorial industry is rife with overtime violations. A case filed by the Department of Labor (“DOL”) illustrates some of the issues in this industry. Jani-King of Oklahoma Inc. was sued for violations of the Fair Labor Standards Act. According to the DOL, Jani-King violated federal law when it sold cleaning “franchises” to individuals who were – in reality – employees. The suit alleged that contrary to typical franchise agreements, Jani-King controlled all aspects of the cleaning contracts held by the franchisee; these aspects included setting the cleaning rates, client relations, billing and payroll, and that Jani-King also controlled the assignment of cleaning contracts among its franchisees, collected payment from clients, kept what it considered to be its share and then distributed what was left to the “franchisee.”

Jani-King moved to dismiss the lawsuit, which was granted by the district court. The district court found that the complaint failed to state a claim because “a corporate entity can never be an ‘individual,’ which is a statutory prerequisite to status as an ‘employee.’” However, on appeal, the Tenth Circuit disagreed and reversed this ruling. The appellate court found that “the district court’s decision was based on the incorrect determination that the Secretary’s definition of ‘Janitorial Cleaners’ was overly broad because it included corporate entities which could never be “employees” under the FLSA because they are not ‘individuals.’ In framing the amended complaint this way, the district court’s order improperly ignores the economic realities test.” As such, the appellate court remanded the case back to the district court for further proceedings. The Tenth Circuit’s ruling made no determination as to the merits of the Secretary’s case, and instead held that it survives the initial Rule 12(b)(6) motion to dismiss. 

This ruling is another illustration that merely because a worker formed a corporate entity does not mean that the worker is therefore an independent contractor. Instead, a court must analyze the economic realities of the relationship between the worker and the company to determine whether the worker was truly an independent contractor or was instead an employee. 

About the author: Josh Borsellino is an attorney who represents workers in claims for unpaid overtime. If you believe you have been misclassified as an independent contractor or otherwise denied overtime pay, call an experienced overtime pay attorney as soon as possible to learn about your legal rights. Josh provides free consultations and can be reached at 817.908.9861 or by completing this form.