Coverall Doomed in Disguising Workers as Owners

After five years of litigation, Coverall North America Inc., one of the world’s largest janitorial cleaning franchisors, will now learn its fate for misclassifying its workers as franchisees instead of employees… Not only will the franchisor get smacked for back wages and other employment fees, it will also be hit with reimbursing its employees with the franchise related fees and expenses that they paid the company, including franchise fees and ongoing funds.

www.bluemaumau.org
February 24, 2012

Coverall Doomed in Disguising Workers as Owners
Janet Sparks

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A Coverall truck at an office building in Kentucky

BOSTON – After five years of litigation, Coverall North America Inc., one of the world’s largest janitorial cleaning franchisors, will now learn its fate for misclassifying its workers as franchisees instead of employees.

At a hearing scheduled for Monday, the district judge is expected to announce what damages Coverall will have to pay to hundreds of purported franchisees in Awuah v Coverall North America Inc. Not only will the franchisor get smacked for back wages and other employment fees, it will also be hit with reimbursing its employees with the franchise related fees and expenses that they paid the company, including franchise fees and ongoing funds.

Now, in addition to that gloomy prediction, the court has also ruled to expand the type or “class” of employees eligible to sue Coverall for its misclassification.

Judge William G. Young stated in his February 10 order that 15 out of 30 individuals who bought a franchise by transferring their existing business to Coverall are also eligible. Those qualify because they did not receive a franchise offering circular containing the arbitration clause. They also they also performed work for Coverall customers in Massachusetts “at any time” since February 15, 2004.

Plaintiff attorney Shannon Liss-Riodan of Lichten & Liss-Riordan said as the lawsuit now stands, all plaintiffs are franchisees who did not sign an agreement to arbitrate their claims.

Heart of the allegations
In the Coverall lawsuit, eight purported franchisees filed their 2007 complaint alleging they were misclassified as independent contractors instead of employees. They also claim that Coverall did not provide the promised volume of cleaning contracts after paying $6,000 to $30,000 for them. They feel the franchisor was targeting immigrants who did not speak good English or fully understand the legal documents given to them.

As employees, the plaintiffs alleged that Coverall is liable for minimum wage, overtime and wage law violations. In the lawsuit, they claim breach of contract, misrepresentation, deceptive and unfair business practices and unjust enrichment.

Judge Young then ruled in March 2010 that the plaintiffs’ claim of being misclassified as franchisees be granted. He found that Coverall had not met the second prong of the state’s three-part test that defines independent contractors. The test required workers to provide services that are “independent, separate and distinct” from the employer’s business.

The other parts of the test require independent contractors to be “free from control and direction in connection with the performance of the service.” And Coverall engaged in the same trade, profession or occupation that they’re doing contractually.

Since that ruling, plaintiff attorneys have listed their clients’ claims for several types of damages related to Coverall’s misclassification debacle, listed as follows:

• $916,844.65 Initial franchise fees and other business fees
• $894,433.78 Insurance deductions
• $106,535.77 Funds collected to offset unpaid customer bills
• $122,932.25 Interest on late payments

They are also asking for triple damages based on a 2008 amendment to the Massachusetts law concerning unpaid wages that allowed for the increase in damages. The Supreme Judicial Court of Massachusetts also ruled earlier in 2005 that courts can triple damages for unpaid wages when there is a “showing of outrageous[ness], because of a defendant’s evil motive or…reckless indifference” to workers’ rights.”

Liss-Riordan said the amounts they are claiming do not include fees paid by class members before February 2004 and after June 2010, or fees paid by the class members added by Judge Young’s recent ruling on those employees who transferred into the Coverall system. She said they have not calculated those yet.

After the judge made his ruling this month on expanding the “class”, Liss-Riordan told the National Law Journal that the plaintiffs are looking forward to Young's pending ruling on the "illusoriness" or validity of Coverall's arbitration agreement. Liss-Riordan said Judge Young also has under consideration their request not to enforce the arbitration agreement at all. “That means everyone would be part of the class in the lawsuit,” she explained.

If the judge does not dismiss the arbitration contracts, Liss-Riodan said they are prepared to arbitrate each case individually, some one hundred cases.

Coverall declined an interview to discuss the latest developments in the case. The franchisor’s only statement at this time, made through its attorneys at DLA Piper, is that it will consider all its options once the court issues its final rulings.

http://www.bluemaumau.org/11303/coverall_doomed_efforts_disguise_employees_owners


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Risks: Shannon Liss-Riordan, Buying a job, Deceptive business practices, Employees misclassified as franchisees or independent contractors, Franchisee, independent contractor or employee?, Franchisees viewed as employees, Immigrants as prey, Language shortcomings create a vulnerability, Lawsuits, class action, Lost life savings, Misrepresentations, United States, 20120224 Coverall doomed

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