From JDSupra, Richard Reibstein discusses two large settlements of misclassification lawsuits – one involving distributors and the other involving janitorial franchisees. Richard writes:
Every so often a large settlement of a class action lawsuit reverberates in the independent contractor world – but last month there were two mega-settlements. The first was between Flowers Foods, a large nationwide baked goods company, and a class of distributors who sued for allegedly misclassifying them as independent contractors in violation of the California Labor Code. The $55 million settlement covering 475 distributors is a very high per plaintiff result. In addition, Flowers Foods reports that it will be incurring another $50 million to buy back about 350 distributor routes and then convert them to an employee distributor model. The other mega-settlement involves a large commercial cleaning company, JanPro, which was sued in California by over 2000 janitorial franchisees for misclassification under the state’s Labor Code and fair trade practices laws as well as breach of contract. JanPro is settling for $30 million. These two settlements demonstrate that California’s very strict test for IC status is extraordinarily unfavorable to many companies with IC relationships that are otherwise lawful under most other state and federal IC laws, assuming the IC relationships are structured, documented, and implemented in a compliant manner. Many businesses that seek to maintain their IC relationships across the U.S. but minimize misclassification exposure in California and other states have followed a process such as IC Diagnostics (TM), which offers companies a customized and sustainable approach to enhance IC compliance.
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BAKED GOODS COMPANY TO PAY $55 MILLION IN IC MISCLASSIFICATION SETTLEMENT WITH DISTRIBUTORS. Leading baked goods producer Flowers Foods Inc. along with two related business entities have reached a $55 million settlement with a class of delivery drivers in an independent contractor misclassification class and collective action under the FLSA and California state law. The distributors had made claims seeking overtime compensation under the FLSA and California state law as well as reimbursement of deductions and expenses, among other claims, due to the alleged misclassification of the distributors as independent contractors and not employees. Flowers Foods is the second-largest commercial bakery in the United States whose brands include Wonder Bread, Tastykake, Sunbeam, and Nature’s Own. The proposed settlement also resolves two companion cases against the company involving IC misclassification. In its filing with the United States Securities and Exchange Commission, Flowers Foods reported that, under the settlement, a $55 million fund would be established to cover payments to a class of about 475 plaintiffs and for service awards to the named plaintiffs as well as for attorneys’ fees and administrative expenses.
The SEC disclosure also notes that the settlement requires an additional expenditure by the company of $50 million to “repurchase … approximately 350 distribution territories” in California which, once completed, would be serviced by the company with its own employees and not through independent contractors. In settling the cases, the Company expressly states in its SEC filing that it does not admit any liability and is subject to approval by the court. This settlement is unlikely to be a precedent for the company in other jurisdictions because California has one of the most unfavorable laws in the country to maintain otherwise legitimate independent contractor relationships. Ludlow v. Flowers Foods Inc., No. 18-cv-01190 (S.D. Cal. Sep. 5, 2023); Maciel v. Flowers Foods, Inc., No. 3:20-cv-02059-JO-JLB (S.D. Cal.); and Maciel v. Flowers Foods, Inc., No. 20-CIV-02959 (Super. Ct. San Mateo County, California).
LARGE COMMERCIAL CLEANING FRANCHISOR TO PAY $30 MILLION TO SETTLE IC MISCLASSIFICATION CASE WITH 2,200 CLEANING FRANCHISEES. A nationwide cleaning services franchisor and class of janitorial franchisees have reached a $30 million proposed settlement in an independent contractor misclassification class action. The complaint alleged that Jan-Pro Franchising International, Inc. subjected the janitors to “systematic misrepresentations and breaches of contract in their relations with the company by “purport[ing] to sell cleaning ‘franchises” knowing it does not have sufficient business to satisfy its obligations,” and by misclassifying them as independent contractors and not employees in violation of the California minimum wage, overtime, expense reimbursement, and unlawful deduction laws. A class was certified as to the franchisees’ minimum wage claim (but only regarding the issue of mandatory training), the franchisees’ expense reimbursement claim (but only regarding required uniforms, cleaning supplies, and equipment), and the franchisees’ unlawful deductions claim (but only regarding management, sales, and marketing fees). An order issued by the court in August 2023 stayed the action as to 125 class members and set a trial date for October 2023 for the remaining 2,100 class members. Roman v. Jan-Pro Franchising International, Inc., No. 3:16-cv-05961 (N.D. Cal. Sept. 22, 2023).
