Pope, Andrew v. Espeseth, Inc. et alBrief in OppositionW.D. Wis.October 21, 2016UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN ______________________________________________________________________________ Andrew Pope Joshua Rave On behalf of themselves and all others similarly situated Plaintiffs v. Case No. 15-CV-486 Espeseth, Inc. Anthony Espeseth Fish Window Cleaning Services Inc. Defendants. ______________________________________________________________________________ MEMORANDUM OF LAW IN OPPOSITION TO FISH WINDOW CLEANING SERVICES INC.’S MOTION FOR SUMMARY JUDGMENT I. Introduction. Fish Window Cleaning attempts to argue that it is not an employer under the Fair Labor Standards Act of Plaintiffs Pope and Rave, solely based upon criteria that the Seventh Circuit has stated would be foolhardy to suggest to be the only relevant factors, or the most important factors. Moldenhauser v. Tazewell Pekin Consol. Comm. Ctr., 536 F. 3d 640, 644 (7 th Cir. 2008). Employer status may be established under the FLSA for an entity that does not perform any human resources functions, and that relies upon another employer to implement and enforce its policies and procedures upon jointly employed employees. This case does not involve a typical franchisor-franchisee employee relationship when Fish explicitly told its franchisee employees that they worked for a national organization called Fish Window Cleaning® rather than the franchisee, when Fish required franchisee employees to Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 1 of 28 2 comply with its Policy and Procedure Manual and other policies that regulated the details of their day to day working conditions where were unrelated to protecting Fish’s brand and quality standards, and when Fish reserved the right to take over the day to day operations of its franchisees. Fish’s promulgation of detailed standards that governed franchisee employees’ working conditions, combined with its power to effectively recommend employee compensation policies to its franchisees, makes it the Plaintiffs’ employer under the FLSA. Fish was also Rave and Pope’s employer under the FLSA pursuant to principles of apparent agency when it deliberately created the impression that Rave and Pope were employed by a national organization named Fish Window Cleaning®, rather than solely by a local franchisee Espeseth Inc. Rave and Pope relied upon the representation that they worked for a national organization when they kept working for Fish, rather than look for other work right away. Fish Window Cleaning was also Pope and Rave’s employer under Wisconsin law. Under Wisconsin law a franchisor is the employer of its franchisee’s employees, when it had the right to control the aspect of the franchisee’s operation that caused the employees’ injury. In this case Fish had the right to require franchisees to implement its recommended system of compensation, required franchisees to comply with Wisconsin wage and hour laws, and had the right to enforce both requirements by taking over day to day operation of the franchisee’s business. Fish therefore had the right to control Espeseth Inc.’s compensation policies; so that it was Pope and Rave’s employer under Wisconsin law. Fish’s motion for summary judgment therefore should be denied in its entirety. II. Argument. 1. Fish Was the Actual Employer of the Plaintiffs under the FLSA. Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 2 of 28 3 a. Whether Employer Status is Established Must be Determined Based Upon the Unique Facts of Each Case, Rather than a One Size Fits All Test. Fish correctly cites Moldenhauser as an important case in the Seventh Circuit defining the applicable approach for determining joint employer status under the FLSA, but misrepresents its holding. In the case, the Seventh Circuit described four criteria that other circuits have considered when determining joint employer status. While Fish claims that these four criteria are determinative of employer status under the FLSA in the Seventh Circuit, the Seventh Circuit in Moldenhauser rejected that very argument: Moldenhauer asks us to adopt a similar list of factors that are relevant to the determination of a joint-employer relationship. But we decline to so limit our review in this case or subsequent cases. Although these factors are certainly relevant in deciding whether an employer-employee relationship exists, it would be foolhardy to suggest that these are the only relevant factors, or even the most important. 536 F. 3d at 644 (Emphasis added) Rather, the existence of a joint employer relationship depends on whether each purported employer exercises control over the working conditions of the employee, with the ultimate determination varying depending on the circumstances of each case. Id. The Seventh Circuit then cited as an example of a proper determination of joint employer status its earlier decision in Reyes v. Remington Hybrid Seed Co., 495 F. 3d 403, 408 (7 th Cir. 2007). In that case, the Court held that a farm that supervised the migrant laborers’ day to day work, but had no responsibility to hire, house, or compensate the migrant laborers was the migrant laborers’ employer. This court has similarly found an entity that does not perform any human resources functions to be a FLSA employer. Espenscheid v. Directsat USA, 2011 U.S. Dist. Lexis 154706 *52 (W.D. WI. 2011) (Found joint employer status even though other Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 3 of 28 4 employer exercised all human resources functions such as hiring, firing, and employee discipline). Therefore, unlike in other circuits, in the Seventh Circuit an employer that exercises substantial control over its employees’ working conditions cannot avoid liability by merely delegating human resources responsibilities to its co-employer. The cases from other circuits cited by Fish, which rely upon a rigid test including the requirement that the purported employer perform human resources functions, therefore provide little guidance for how employer status should be determined under Moldenhauser. See Singh v. 7-Eleven, Inc. (C.D. CA.) (Joint employer status depended on purported joint employer involvement in hiring, firing, paying employee compensation, and day to day operations of the business); Reese v. Coastal Restoration & Cleaning Serv. Inc. (S.D. MS.) (Same); Wright v. Mountainview Lawn Care, LLC (W.D. VA.) (Relied primarily on power to hire and fire, day to day supervision, and control over work location to determine employer status under the FLSA). Moreover, in this case there is some evidence that Fish does exercise control over employee hiring. The Pre-Training Procedures Manual includes a discussion of bounding insurance, and provides that there may be an issue if an employee has a criminal record for dishonest acts, so that he cannot be covered by the bound. (Ho Dec. Ex. 4, pg. 24-25) Definition of “employer” under the FLSA extends to both the employer that promulgated, and the employer that implemented and enforced policies that affected the jointly employed workers’ working conditions. In Brown v. ABM, 2015 U.S. Dist. Lexis 160488 *10-11 (N.D. IL. 2015), the Court found that a complaint adequately pled that a parent corporation was the plaintiff’s employer by alleging that applicable wage and hour policies were created by the Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 4 of 28 5 parent and implemented by the subsidiary, that the parent provided companywide wage and hour instructions and training to its regional subsidiaries, and that the parent trained its subsidiary managers to have employees arrive early and collect their equipment and supplies before their shifts begin, and without pay. An entity that promulgated policies and procedures that affected the employees’ working conditions, but relied upon subsidiary supervisors whom it trained to enforce said policies and procedures thus can be a FLSA employer. See also Miller v. D.F. Zee’s Inc., 31 F. Supp. 2d 792, 807 (D. Oregon, 1998) (Franchisor was the employer of the franchisee’s workers when it created a manual that governed the franchisee’s operations, enforced the manual by reserving the right to terminate the contract, and controlled the very aspect of the franchisee’s operations that caused the plaintiffs’ injury); Cano v. DPNY Inc., 287 F.R.D. 251, 260 (S.D. N.Y. 2012) (Complaint allegations that the franchisor promulgated, and then trained its franchisee’s managers to implement its uniform policies support the conclusion of employer status). In this case, Fish controlled the Plaintiffs’ working conditions by both requiring Espeseth Inc. to promulgate and implement a detailed policy and procedure manual, and by requiring Espeseth Inc. to comply with additional requirements in addition to the Manual that affected franchisee employees’ working conditions. Fish also effectively recommended for Espeseth Inc. to implement a system of compensation that it designed, which the Plaintiffs allege to violate the FLSA. Construing material factual disputes in the Plaintiffs’ favor therefore shows that Fish and Espeseth jointly employed employees working out of Fish’s Eau Claire location. b. Fish Required Espeseth Inc. to Follow and Enforce Its Employee Policy and Procedure Manual. Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 5 of 28 6 There is no dispute that Fish made available to Espeseth a document entitled the Policy and Procedure Manual (“Manual”) alongside other new hire documents. (Docket #52-4; Espeseth Dep. 46:9-11; Fish Dep. 49:7-18) Fish’s claim that the Manual was only a sample made available to franchisees, as opposed to a document that Espeseth was required to distribute to employees and implement, is contradicted by both the deposition testimony of Espeseth Inc., and by the plain language of the Manual. During its deposition Espeseth Inc. testified as follows: Q: Did Fish require you to have employees read the policy and procedure manual? A: Yes. Q: Did Fish require you to have employees sign off on that manual? A: Yes. Q: Okay. So the Policy and Procedure Manual is provided to every newly hired employee? A: Yes. Q: And did Fish require you to do that? A: Yes. Q: All right. A: That’s more like recommended, but yes. Q: Are Espeseth’s employees required to follow this manual? A: Yes. A: And is that something dictated by Fish? A: Yes. That’s stated right here. Espeseth Dep. Pg. 45:5-45:10, 46:2-8; 78:17-22. Espeseth Inc. thus clearly testified that Fish required it, as a Fish franchisee, to have employees read the Manual, to sign off on the Manual, and to follow the Manual. Espeseth Inc. also clearly understood the difference between required and recommended, as illustrated by its testimony that Fish only recommended that it provide a Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 6 of 28 7 copy of the Manual that its employees read and signed to the employees to keep. Nor has Fish submitted any documents to the Court showing that it told Espeseth Inc. that franchisees could pick and choose which policies to include and exclude from the version of the Manual provided to the franchisee’s employees. Since Fish’s summary judgment motion solely concerns the employee status of Named Plaintiffs Pope and Rave, communications between Fish and other franchisees are not material to the motion, unless there is evidence that Espeseth Inc. also received the communication. Espeseth Inc.’s testimony that Fish required it to distribute the Manual to its employees and to require its employees to follow the Manual finds further support in the language of the Manual. When the Manual refers to Fish Window Cleaning®, it is referring to the franchisor, rather than the St. Louis based cleaning business. (Fish Dep. 91:22 – 92:3) The Manual then refers to every employee receiving a copy of the Manual as an employee of Fish Window Cleaning®. (Docket #52-4, pg. 3, line 2) The Manual then goes on to explain: Every Fish employee will receive a copy of this Manual, and every Fish employee will be expected to comply with its guidelines as a condition of his/her employment with Fish…These policies and procedures apply to all Fish employees and supersede all previous manuals. Docket #52-4, pg. 3. The Manual therefore represents to every employee receiving it that all other Fish employees, i.e. all other employees employed by a Fish franchisee, would also be subject to the policies and procedures outlined in the Manual. Fish cannot make a truthful representation to its franchisees’ employees that the Manual applies to all Fish employees, unless it requires all franchisees to give their employees notice of, and to require their employees to follow the Manual, just like Espeseth Inc. testified Fish required it to do. Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 7 of 28 8 If there is any doubt remaining as to whether all franchisee employees are required to follow the Manual, Fish also required each employee to sign off on the Manual. (Espeseth Dep. Pg. 45:8-10) The signed acknowledgement form, which was signed by both Pope and Rave (Pope Dec. ¶8, Rave. Dec. ¶10), requires the franchisee employee to acknowledge: This is written confirmation that I have read the Policy and Procedure Manual and the company’s policy on harassment. I understand the importance of following these procedures. I agree to adhere to the company’s policy. I understand the failure to uphold these standards and validated complaints will result in disciplinary action. Docket #52-4, pg. 24. Fish therefore required every employee of every franchisee to sign a statement confirming that he or she will follow the standards and procedures outlined in the Manual; which clearly suggests to a reasonable fact finder that Fish required all employees of all franchisees to follow the standards and procedures outlined in the Manual. The point is further illustrated by language in the Manual stating that two of its policies, for holiday pay and paid time off, were at the discretion of the individual franchise owner. (Docket #52-4, pg. 19, 21) There would be no reason to explain to employees that these two policies were at the discretion of the individual franchise owner, if franchisees also had discretion as to whether they would distribute to their employees, and enforce, other policies outlined in the Manual. This was exactly the understanding of Espeseth Inc: Q: By saying that, that the pay time off section of the manual is at the franchisee’s discretion, does the manual also apply to when it doesn’t say it’s with the discretion of the franchisee, that the policies are mandatory? A: Yes. Espeseth Inc. Dep. Pg. 91:17-23. When deciding a motion for summary judgment, the Court should construe all material factual disputes and draw all reasonable inferences in favor of the non-moving party, in this case the Plaintiffs. Black Earth Meat Market v. Vill. Of Black Earth, Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 8 of 28 9 2016 U.S. App. Lexis 15596 (7 th Cir. 2016) In this case, the factual record permits a reasonable fact finder to conclude that Fish required Espeseth Inc. to give the Plaintiffs notice of, and to require them to comply with the Manual. c. The Manual Contains Detailed Rules Governing the Working Conditions of the Employees of Fish Franchisees. The Manual contains detailed rules that affect the working conditions of the employee. Many of these rules have a clear effect on the employee’s day to day work experience. The Manual required franchisee employees to report to management at 7:00 a.m., required franchisee employees to notify franchisee supervisors of their unavailability for work by 7:30 a.m., required franchisee employees to provide franchisee management with a doctor’s note if they would be absent for more than two consecutive days, required franchisee employees to refrain from 13 types of conduct that Fish considered to be inappropriate, strictly prohibited franchisee employees from smoking in franchisee offices and facilities, required franchisee employees to keep and sign a time sheet every day, required franchisee employees to separate cash and billed invoices, required all franchisee employees who worked on a job be present when paperwork is turned in at check-in, prohibited franchisees from giving a protected route to franchisee employees, prohibited franchisee employees from filling out work invoices ahead of time, and prohibited franchisees from paying commissions on invoices that had not been signed by both the cleaner and the customer. (Docket #52-4, pg. 9, 14, 15-18) The Manual also contained specific and detailed rules regulating the franchisee’s management of its employees. The Manual thus required franchisee employees to go through a 90 day probationary period, required franchisees to provide a financial reward to franchisee employees who brought in a new customer referral, required franchisee supervisors to apply a Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 9 of 28 10 policy of progressive discipline where appropriate, prohibited the use of franchisee communication systems to promote religious or political causes, required franchisees to evaluate the work performance of their employees twice a year, required franchisees to consider failure to report three consecutive days of absence as a voluntary quit, required franchisee employees who were terminated or quit to pick up their final paycheck in person, and required franchisees to deduct the value of missing equipment and apparel from the final paycheck of the terminated employee. (Docket #52-4, pg. 4, 8-12, 14-18) Nor is Fish’s promulgation of work rules and policies that affected Espeseth employees’ working conditions limited to the Manual. Fish also required Espeseth Inc. to provide a copy of the employee job description to its employees. (Espeseth Inc. Dep. 44:24) Fish required Espeseth Inc. to to pay newly hired employees hourly pay, rather than the production percentage pay received by more experienced employees, during their training period. (Id., pg. 66:2-4) Fish required all of its window cleaners to have a valid driver’s license, reliable transportation, liability car insurance, and to wear a Fish uniform. (Id. pg. 75:10-13) Fish also required the franchisee owner to furnish to its employees uniforms and equipment that they would be using while working for Fish. (Id, pg. 72:6-7) Moreover, while Fish claims that it only had the right to require franchisees to have their employees sigh non-competition and non-disclosure agreements; Espeseth Inc. testified that Fish required it to provide the agreements to its employees. (Id. pg. 45:1.). Fish has thereby regulated every meaningful aspect of the relationship between the franchisee and its employees from when the employees are required to show up to work, to rules that govern how the employees perform their day to day work, to rules that govern what the Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 10 of 28 11 employees are prohibited from doing while working for Fish (such as smoking on company premises and filling out invoices ahead of time), to rules that govern how the employees are paid (such as hourly pay for training employees, and no pay for employees who turned in a invoice that was not signed by both the window cleaner and the customer). There is also evidence that Fish would train franchisee managers on subjects such as how to compensate franchisee employees. (Docket #50, ¶16; Docket #51, ¶16) For the purpose of the FLSA employer analysis it is immaterial that Fish relies on its individual franchisees to enforce its standards and rules that govern the franchisee employees’ working conditions, using franchisee supervisors that it trained; rather than enforce them on its own. Brown, supra; Miller, supra. Fish does not materially dispute the significance of any of the above controls that it exercises over the employee’s working conditions, aside from claiming that its power to require franchisees to adhere to a 7:00 a.m. start time should not be given significance when determining its status as the Plaintiffs’ employer. Fish’s argument is internally inconsistent, when control over employee work schedules is one of the four factors that Maldenhauser identified as important to other circuits’ determination of joint employer status, which Fish has incorrectly asked the Court to apply as the determinative criteria in this case. Fish’s argument also finds no support in the cases that it cites. In Singh, the franchisor’s control was limited to requiring for the store to be open 24 hours per day, 7 days per week, but did not extend to how the franchisee was required to schedule individual employees. Similarly, in Jean-Louis v. Metro Cable Comm. Inc., the purported joint employer gave to the subcontractor time windows when each assignment must be completed, but left to the subcontractor to determine the actual work schedules of the employees who would be used to complete those work assignments. Both cases thus involved Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 11 of 28 12 the purported employer dictating when work must be performed, rather than how individual employees must be scheduled. In contrast, in this case Fish is directly dictating when individual franchisee employees must begin working by checking in with management, rather than merely giving franchisees time windows when services for individual customers must be completed. Nor can Fish escape liability by claiming that its work rules were solely for the purpose of protecting brand and quality standards. The most relevant case cited by Fish on this point, Zampos v. W & E Comm’cns., 970 F. Supp. 2d 794, 803 (N.D. IL. 2013), makes a distinction between standards relating to the safety and security of customers which are unlike controls exercised by an employer, and controls exercised by an employer such as setting work schedules, determining how many technicians work at the same time, and requiring technicians to report to a company warehouse each morning. In this case, the standards promulgated by Fish go far beyond what is necessary to protect its brand and quality standards. Some examples include the requirement that employees report to management at 7:00 a.m., the requirement that employees are paid on an hourly basis during their training period, the requirement that franchisee employees provide a doctor’s excuse if they will be absent for more than two days, the requirement that franchisee employees fill out a time sheet each day, and the requirement that all employees who discharged or quit pick up their final paychecks in person. All of these rules solely affect the relationship between the franchisee and its employees; and have nothing to do with how the Fish franchisee either presents itself to the public, or complies with Fish brand and quality standards. Fish is promulgating standards and rules to be enforced by the franchisees in its capacity as the employer of the franchisee’s employees. d. Fish Had the Right to Effectively Recommend the Compensation of Franchisee Employees. Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 12 of 28 13 In considering whether a purported joint employer exercised sufficient control over the employee’s working conditions to qualify as a FLSA employer, the Court may consider evidence of de facto, rather than formal control. Dinkins v. Varsity Constr. Inc., 2005 U.S. Dist. Lexis 6732 *25-26 (N.D. IL. 2005) (Mall owner has de facto power to fire a tenant’s employees, because it has the power to bar those employees from working in the mall). Similarly, a purported employer’s power to make effective recommendations demonstrates its control over the employee’s working conditions. Donnelly v. Corvest Prop. Trust, 2010 U.S. Dist. Lexis 54713 *20 (C.D. IL. 2010) (Recommendation to deny a bonus to an employee, which was followed, is evidence of control and supervision); Freeman v. Foley, 911 F. Supp. 326, 331 (N.D. IL. 1995) (Supervisors exercised sufficient control over employee’s leave request to qualify as employer, when they recommended for the employee to be terminated). In contrast, the cases cited by Fish involved a purported employer making suggestions rather than effective recommendations. First, Fish requires new franchisees to review its so called “recommended” employee compensation programs. New franchisees are required to complete all tasks for each week, including the task in week 4 of the program to review Fish’s Window Cleaner, Operations Manager, and Sales Person pay programs. (Ho Dec. ¶4; Ex. 4, pg. 5, 47) Fish would have no reason to require franchisees to review its pay programs, if it truly was at the franchisee’s choice to determine how to compensate its employees. Indeed, the Pre-Training Manual cannot put on stronger sales pushes for franchisees to adopt the pay programs, by stating that the pay programs: Provide your employees with a clear path for success within your corporation, are tools that foster clear communication between you and your employees, improve retention of employees, reduce costs associated with unnecessary employee Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 13 of 28 14 turnover, and increase profits for ownership through stable, satisfied, and productive employees. Ho Dec. Ex. 4, pg. 47. Fish thus informs franchisees that implementing its pay programs would produce satisfied and productive employees, and reduce employee turnover. Nor are franchisees free to ignore Fish’s employee compensation programs, after they have complied with Fish’s requirement to review them. Fish’s franchise agreement with its franchisees vests Fish with the power to require franchisees to comply with the system of employee compensation designed by Fish: There is no dispute that Fish’s Window Cleaner Compensation Program is a document posted in the Fishing Hole; and that while the Program is currently only recommended, Fish has the right to require franchisees to implement its Compensation Program. (Fish Dep. Pg. 163:1-21) The 2004 franchise agreement signed by Espeseth Inc. required it to both comply with each current required standard, and with each new or changed standard. (Docket #56-5, pg. 10) The 2014 franchise agreement signed by Espeseth Inc. required Espeseth Inc. to comply with all personnel standards and procedures in the Fishing Hole; and reserved the Fish the right to change said standards and procedures, such as changing a standard from a recommended standard to a required standard. (Docket #56-6, pg. 12) Both franchise agreements additionally required all franchisees to comply with all laws, regulations, codes, and ordinances. (Docket #56-5, pg. 12; #56-6, pg. 14) Fish explicitly admits that it has the power to require franchisees to adhere to all minimum wage and overtime laws. (Fish Dep. Pg. 225:5-8) Nor is Fish’s remedy for the franchisee’s violation of its standards and external laws limited to terminating the franchise agreement. Rather, Fish has the explicit authority to take over the operation of a franchisee’s business if the franchisee fails to abide by Fish’s Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 14 of 28 15 standards and requirements in the operation of its business, such as the requirement that the franchisee must comply with all laws. (Docket #56-6, pg. 23 (Art. 10(E)1); pg. 25 (Art. 11A)) Given that the franchisee faces the loss of its business by failing to comply with Fish standards and wage and hour laws, the franchisee is given a significant incentive to comply with the compensation system prescribed by Fish for its franchisees. Fish also explicitly encouraged its franchisees to implement the percentage system of compensation that it promulgated. For example, the pay program in its Personnel Manual provides: “unless you have very good management skills, if you do not pay on a percentage, you will go broke…After 90 days of employment no employee has ever quit over lack of income.” (Fish Dep. Ex. 2, pg. 29) Fish also told franchisees that they should be successful if they followed the Fish model, that franchisee’s problems were caused by its failure to follow the Fish model; and that franchisees should not call Fish and complain about problems unless they are following the Fish model. (Espeseth Dep. Pg. 17:18-20; 18:4-6) The Introduction letter received by Espeseth Inc. from Fish similarly stated that if the franchisee is ready to follow the System, it would take between 3- 5 years off the normal learning curve. (Docket #52-1) Equally compelling is evidence that Fish trained Espeseth’s managers to implement its employee compensation program. There is no dispute that a number of Espeseth managers received direct training from Fish. (Masters Dec. ¶38) Both Plaintiffs stated in their declarations that when they complained to an Espeseth manager about how they were compensated, they were told by the manager that the manager had been trained by Fish on how to compensate window cleaners; and that how they were paid was how Fish did things, and how everyone at Fish was paid. (Docket #50, ¶6; Docket #51, ¶6) The evidence supports the inference that Fish Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 15 of 28 16 had trained the managers of its franchisees to implement its recommended system of compensation; and had told the trainee managers that its recommended system of compensation was how everyone at Fish was paid. The statements of the Espeseth manager to the Plaintiffs are admissible on summary judgment given that she was Fish’s apparent agent when she spoke to the Plaintiffs: Fish had deliberately communicated to franchisee employees that they were employed by a national organization called Fish Window Cleaning®, which led Rave and Pope to reasonably believe that the Espeseth manager who spoke with them was a Fish agent entrusted with dealing with franchisee employees. (Docket #52-4, pg. 2-3; Docket #50, ¶4, #51, ¶4) Also telling is that Fish cannot point to a single franchisee who deviated from the portions of its recommended system of employee compensation that are at issue in this lawsuit: The unlawful inclusion of expense reimbursement when computing minimum wage compliance, and the failure to pay overtime pay. (Ho Dec. Ex. 3, Answers to Interrogatories #1 and #2) Fish’s counterargument that it does not know how franchisees compensate their employees is not persuasive. Fish would be in regular contact with each of its franchisees: Its Franchisee Coordinator would be expected to be in frequent contact with a new franchisee during the first 12 weeks of operation, after which the franchisee would be expected to have monthly communications with a franchisee specialist, even if it was a franchisee with 20 years of operating experience. (Fish Dep. 21:5-23) It would be reasonable to infer, and there is evidence suggesting that Fish would speak to the franchisee about employee compensation matters during these communications. Espeseth Inc. for example, testified that in approximately 2013 he was called by Fish Coordinator Doug Apt, who was conducting a survey on which franchisees kept Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 16 of 28 17 track of the number of hours worked by their employees. 1 (Espeseth Dep.186:12-187:1) It would also be very surprising if employee compensation doesn’t come up during conversations between franchisee coordinators and franchisees, given that the franchisee coordinator’s job was to help the franchisee implement the Fish model, and to keep the franchisee following the Fish Model. (Id. 26:25-27:6) Fish attempts to escape the conclusion that it effectively recommended for Espeseth Inc. to implement its system of compensation, by claiming that Espeseth made deviations from its model that are unrelated to the Plaintiffs’ claims. Fish’s argument fails because Espeseth Inc. followed the exact compensation program that it was taught by Fish. The only document that Espeseth Inc. was training on concerning employee compensation during its training was docket #52-2. (Espeseth Inc. Dep. Pg. 24:24-25:2) Of all the purported prongs of the Fish compensation program that Fish alleges Espeseth did not follow, only two can be found in Docket #52-2: The requirement that experienced window cleaners receive a bonus of 10% of production pay, and the provision stating that during training window cleaner should be paid hourly for the first 10 days. Consistent with the program, Espeseth paid a bonus equal to 10% of the commission. (Espeseth Inc. Dep. Pg. 92:16-22) Espeseth also paid hourly wages to both Pope and Rave during their first two weeks of employment, rather than only for the first 2-3 days. (Docket #52-2, Ho Dec. Ex. 1, 2) While Rave did receive some commission pay during his second week of training, nothing in the training document required the franchisee to pay to its trainee a lower hourly wage when the trainee would make more on commission. Moreover, the training document is an excerpt from, rather than the full Window Cleaning Training Program 1 None of Fish’s recommended employee compensation programs reference the need for franchisees to keep track of their employees’ hours worked. See Docket #52-2; Fish Dep. Ex. 34, 35. Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 17 of 28 18 that Espeseth Inc. received. (Docket #52-2, pg. 4) Espeseth Inc. therefore acted consistently with the training document by paying two weeks of hourly training pay to Rave and Pope, with a commission supplement for Rave; and by setting 10% as the bonus percentage. More generally, Espeseth Inc. followed Fish’s system to a tee by paying window cleaners on a commission basis, by classifying a part of the commission as a mileage reimbursement, and by not paying any overtime pay to the window cleaners prior to the filing of this lawsuit. (Ho Dec. Ex. 1, 2; Espeseth Dep. Pg. 54:7-17, 56:24-57:11) The payroll documents for Rave and Pope additionally show that Espeseth paid a bonus on a biweekly basis with every check, exactly as recommended by Fish, rather than every 90 days. (Ho Dec. Ex. 1, 2) The other portions of the compensation program that Fish claims Espeseth did not implement, namely the criteria for paying a bonus for window cleaners, paying the same commission percentage for all types of work, and only scheduling routes within 25 miles of the franchisee’s territory, cannot be found in the training document Fish actually provided to Espeseth. (Docket #52-2) Nor is there evidence either that Espeseth was later taught these additional requirements, or that Espeseth in fact substantially deviated from these additional requirements: The criteria that Espeseth used to pay the bonus is in any event similar to Fish’s, in requiring that employees show up on time, and to have no call-backs. (Espeseth Dep. Pg. 57:2-11) While Espeseth paid 32% on route work, and 28% on residential work, he also understood that he had always implemented a system under which employees would be paid 30% of their production. (Id. pg. 104:11-14) The record thus permits the inference that Espeseth adopted the different percentages for route work and residential work in order to achieve result recommended by Fish, under which cleaners receive pay and expense reimbursement equal to Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 18 of 28 19 30% of their overall production when combining residential and route work. Finally, while the Plaintiffs may have worked more than 25 miles from Espeseth’s Eau Claire office, there is no evidence they worked more than 25 miles from Espeseth’s assigned territory. Evidence that Espeseth Inc. in all material terms implemented the system of compensation recommended by Fish further supports the conclusion that Fish effectively recommended a system of window cleaner compensation to its franchisees. 2. The Plaintiffs were the Apparent Employees of Fish. It has long been the settled rule in the federal judicial system that where a statute is silent as to the applicability of agency law, the principles of apparent agency are applicable. Am. Society of Mech. Engineers v. Hydrolevel Corp., 456 U.S. 556, 567 (1982). The Eleventh Circuit therefore considered on the merits whether under the FLSA a grower owed to migrant laborers referral fees that its words or conduct caused the laborers to believe they were entitled to. Arriaga v. Fla Pac. Farms, LLC, 305 F. 3d 1228, 1244-1245 (11 th Cir. 2002). Similarly, in Myers v. Garfield & Johnson Enterp., 679 F. Supp. 2d 598, 613 (E.D. PA. 2010), the Court inferred that in a Title VII case a franchisor may be the apparent employer of its franchisee’s employees, when it had represented to those franchisee employees that they worked for the franchisor. Similarly, the FLSA permits the claim that Fish was the apparent employer of Rave and Pope, based upon representations that Fish made to those employees. Fish as the franchisor is the apparent employer of its franchisee’s employees, when its representations to the franchisee’s employees led them to reasonably believe that they were employed by the franchisor. Ochoa v. McDonald’s Inc., 133 F. Supp. 2d 1228, 1240 (N.D. CA. 2015) (Franchisor McDonald’s was the franchisee employees’ employer, where they reasonably believed based on Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 19 of 28 20 McDonald’s representations that they were employed by McDonald’s). In this case, the Plaintiffs received numerous representations that Fish was their employer, most prominently in the Manual that Fish required its franchisees to distribute to its employees. Specifically, the Manual informs franchisee employees: We hope you have a great contribution to make to Fish Window Cleaning®, and that you will find your employment with us a rewarding experience. (Docket #52-4, pg. pg. 2) As an employee of Fish Window Cleaning®, you have an opportunity to be a part of a fast-growing, highly respected organization that is committed to leading the industry in growth, quality, and professionalism. (Id. pg. 3) Every Fish employee will receive a copy of this manual, and every Fish employee will be expected to comply with its guidelines as a condition of his/her employment with Fish…The last page of this manual is a form all employees must sign and date…These policies and procedures apply to all Fish employees and supersede all previous manuals” (Id. pg. 3) As a Fish employee, you are our best advertisement…When people on the street see our employees performing their tasks professionally and with a good attitude, they will want Fish to provide the same type of service for them as well. You can never under estimate the impact that you are having at any time you are working in public for Fish.” (pg. 8) The Manual thus explicitly communicates to franchisee employees that they are employed by an entity named Fish Window Cleaning®, which Fish has admitted to refer to the franchisor. (Fish Dep. Pg. 91:22 – 92:3) Moreover, by telling franchisee employees that they are employed by Fish Window Cleaning®, a leader in the window cleaning industry with franchises growing throughout the United States, Fish has conveyed to its employees the clear impression that they are employed by a large and expanding organization called Fish Window Cleaning®. (Docket #52-4, pg. 3) Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 20 of 28 21 The Manual additionally and clearly represents to franchisee employees that the individual franchisees are departments of Fish. For example, the Manual provides that each Department Manager is required to maintain a summary time sheet. (Docket #52-4, pg. 14) Since Espeseth maintains one summary time sheet, the Manual refers to Espeseth Inc. as the department manager responsible for keeping a summary time sheet. (Espeseth Dep. 83:11-16; 84:2-4) The Manual therefore sets out Fish Window Cleaning® as the employer of the franchisee window cleaners, with the franchisees set as managers of Fish departments. The same impression that franchisee employees are employed by Fish is fostered from the time when a prospective employee first applies for employment, to throughout his period of employment with Fish: If an employee applied for a job through a Fish hiring website, he would see that the website refers to franchisees as locations of Fish Window Cleaning, and would fill out an application that contains the name of Fish Window Cleaning, but not the name of the franchisee on every page. (Rave SJ Dec. ¶4) During the application process, the franchisee’s managers would refer to the application as one with Fish, rather than with the franchisee. (Rave SJ Dec. ¶5, Pope SJ Dec. ¶4) Upon hiring, the employee would receive a check list that has a large Fish logo on it, and would sign a number of hiring documents, with virtually every document containing the Fish logo. (Rave SJ Dec. ¶6-7; Pope SJ Dec. ¶4-5) The office itself would have Fish posters on it, thus further reinforcing the impression that the employee is working for Fish. (Rave SJ Dec. ¶8, Pope SJ Dec. ¶6) During each and every day the Plaintiffs worked with Fish they wore a shirt with the Fish logo on it; used an invoice with a Fish logo on it for each and every job they worked, used equipment with the Fish logo on it, and saw a company van with a large Fish logo on the side. While interacting with customers the employees Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 21 of 28 22 would refer to themselves as Fish Window Cleaning, while the customer would also refer to the window cleaners as Fish Window Cleaning. (Rave Dec. ¶9; Pope Dec. ¶7) Fish admits that with respect to its customers, it deliberately wishes to cultivate the impression that the customers are receiving service from Fish Window Cleaning, rather than from individual franchisees. (Fish Dep. Pg. 33:10-15) The above evidence demonstrates that Fish similarly created the impression that its franchisee employees work for a national organization called Fish Window Cleaning®, rather than only for individual franchisees. Nor can Fish claim that it acted only to protect its brand, when it would not affect the brand for Fish to communicate to franchisee employees that they worked for the individual franchisee, rather than for Fish. Each of the Plaintiffs therefore believed that while they were employed by Fish Window Cleaning®, the day to day supervision of their work had been delegated to the Eau Claire Department, and that Espeseth managers were the representatives of Fish Window Cleaning. (Rave Dec. ¶16-17; Pope Dec. ¶12-13) Moreover, there is evidence that would permit the fact finder to conclude that Fish deliberately wished for its franchisee employees to believe that they were employed by Fish Window Cleaning, the leader in the window cleaning industry with franchises growing throughout the United States. A sample welcome letter that is still available on its website to franchisees mentions as an explanation that the letter should be provided to franchisee employees to help instill pride in a growing company, and to offset fear of accepting employment with a start-up business. (Docket #49-1; Fish Dep. 31:21-23) Because working for a national company such as Fish Window Cleaning was extremely important to both Pope and Rave, they both would have started looking for other work right away, had they known Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 22 of 28 23 that they were not employed by Fish Window Cleaning the national organization. (Rave Dec. ¶21, Pope Dec. ¶17) Nor can Fish escape liability by claiming that some of the documents that the Plaintiffs received, limited to their check stubs, W-2s, and non-compete agreements, identified Espeseth Inc. d/b/a/ Fish Window Cleaning as their employer. As the court held in Myers addressing the argument that the employees in that case could not have believed the franchisor and franchisee were the exact same employer: Because the separate legal existence of the principal and agent is inherent [**47] in any common-law agency relationship, a third party's knowledge that an apparent agent is distinct from the principal cannot render unreasonable that party's belief that the apparent agent has authority to act on the principal's behalf. Myers, 679 F. Supp. 2d at 1014. Similarly, Fish and Espeseth may be joint employers, with each responsible for overseeing the Plaintiffs’ terms and conditions of employment. There is nothing inconsistent between the Plaintiffs’ belief that Fish was their employer, and documents that communicated to the Plaintiffs that Espeseth Inc. was also their employer, and was entrusted with overseeing their day to day work by performing human resources and payroll functions. Given that the Plaintiffs believed Fish had delegated day to day operation of the Eau Claire Department to Espeseth Inc., it did not surprise them that the business name of the Department Manager appeared in some documents that directly related to day to day management of the business entrusted by Fish to Espeseth, such as their payroll documents and the non-compete agreement. (Rave Dec. ¶18; Pope Dec. ¶14) By deliberately telling the Plaintiffs that they are employed by Fish Window Cleaning®, which led the Plaintiffs to reasonably conclude that Fish was at least one of their employers, and Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 23 of 28 24 to delay their search of other employment out of their belief that they were employed by Fish the national organization, Fish as a matter of law was the apparent employer of the Plaintiffs. The Court should similarly infer that principles of apparent agency apply to Wisconsin wage and hour laws. Kolke & Kolbe Millwork Co. v. Manson Ins. Agency Inc., 983 F. Supp. 2d 1035, 1045-1046 (W.D. WI. 2013) (Inferring that principles of apparent agency applied to Wisconsin tort law). Similar to the test involved in Ochoa, under Wisconsin law apparent agency is established when an act by the principal justified belief in the agency, the employee was aware of the act, and relied upon the act consistent with ordinary care and prudence. Kolke, 983 F. Supp. 2d at 1046. In this case, Fish deliberately represented to the Plaintiffs that they are employed by Fish Window Cleaning® the franchisor, the Plaintiffs were aware of the representation by reading through the Manual, and relied upon the belief that Fish was one of their employers when they refrained from searching for other employment. Fish therefore was the apparent employer of the Plaintiffs under Wisconsin law as well. 3. Fish was the Plaintiffs’ Actual Employer under Wisconsin Law. Contrary to Fish’s representation to the Court, the Plaintiffs’ claims under Wisconsin law encompass claims for minimum wage pay, overtime pay, and additional hourly compensation or their non-window cleaning work time. The minimum wage claim arises under Chapter 104 of the Wisconsin statutes, while both the claims for overtime pay and non-window cleaning work time arises from Chapter 109 of the Wisconsin statutes. German v. Wisconsin DOT, 2000 WI 62, 235 Wis. 2d 576, 586 (2000) (Claim for unpaid overtime wages required by Chapter 274 of the DWD regulations properly brought under Chapter 109 of the Wisconsin statutes); Weissman Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 24 of 28 25 v. Tyson Prepared Foods Inc., 2013 WI App 109 ¶6, 350 Wis. 2d 380 (Ct. App. 2013) (Plaintiffs’ claim for straight time pay for donning and doffing time arises from §109.03) In Kerl v. Rasmusson, 2004 WI 86 ¶19, 273 Wis. 2d 106, the Supreme Court of Wisconsin directly tackled the question of whether a franchisor is the employer of the franchisee’s employees, pursuant to the common law definition that a servant is one who, with respect to his physical conduct in the performance of the service, is subject to the master’s control or right to control. The common law definition interpreted in Kerl is virtually identical to the definition of employer under §104.01(3)(a) as every entity having control or direction of any person employed at any labor; so that the holding of Kerl should apply to determining whether a franchisor is an employer under §104.01(3)(a). Nor should the definition of employer under §104.01(3)(a) be limited to one that exercised actual control over the employee. In Wittka v. Hartnell, 46 Wis. 2d 374 (1970), the Supreme Court interpreted the Wisconsin safe place statute, which just like §104.01(3)(a) defined the employer is one who had control or custody of any employment or employee. The Court interpreted “control” to include right to control rather than only actual control, so that employee status under the statute depends on the employer’s right to control the details of work. See 46 Wis. 2d at 382-383. Similarly, §104.01(3)(a) should be interpreted to apply when the purported employer controlled, or had the right to control any person employed at any labor. Similarly, under §109.01(2) an employer is defined as one that engages in a business that employs one or more persons within the State. Under that definition if a franchisor such as Fish “employed” Rave and Pope, then it has engaged in a business that employs those employees in Wisconsin. Since the words “employs” or “employed” is not defined by the statute, the Court Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 25 of 28 26 should look to the common law, specifically Kerl’s definition of when a franchisor employs the employees of its franchisees, when interpreting the statute. In Kerl, the Supreme Court held that a franchisor was the employer of the franchisee’s employees, where it had the right to control over the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm. Kerl, 2004 WI 86 ¶7. The test is fundamentally different from the test of employer status under the FLSA in two respects: First, the Wisconsin test narrowly focuses on the purported employer’s control over the specific aspect of operation that caused the employee’s injury; rather than the total employment relationship. Second, the Wisconsin test can be satisfied by evidence of right to control, rather than actual control. Applying the Kerl test, Fish had the right to control its franchisee’s compensation of its employees. As outlined above, Fish had the right to both require franchisees to implement its recommended system of compensation, and to require franchisees to comply with wage and hour laws. (Fish Dep. Pg. 163:3-21, 225:5-8; Docket #56-5, pg. 12, Docket #56-6, pg. 14) Moreover, the current franchise agreement, which has been in effect since 2014, permits Fish to take over the operation of Espeseth Inc., in the event that Espeseth Inc. fails to abide by any of Fish’s standards or requirements in the operation of its business, including the requirement that the franchisee comply with wage and hour laws. (Docket #56-6, pg. 23, 24) Fish additionally has the right to conduct inspections to determine whether a franchisee is complying with the provisions of the franchise agreement, including its provision requiring the franchisee to comply with wage and hour laws. (Id. pg. 13) Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 26 of 28 27 In Kerl, the Court found that the franchisor was not the employee of the franchisees because the franchisor could only terminate the franchise agreement, and was without the right to directly supervise how the franchisee handled its personnel issues. See 2004 WI 86 ¶46, enforcing Kerl v. Rasmusson, 2003 WI App 226 ¶26, 267 Wis. 2d 487 (Ct. App. 2003). In contrast, in this case Fish has the full right to discover its franchisee’s violations of wage and hour laws, including by conducting an inspection; and to redress the violation by taking over the franchisee’s day to day operations to make sure that the violations are corrected. Fish therefore has the right to make sure its franchisees compensate their window cleaners in a manner consistent with the FLSA and Wisconsin law, the very aspect of the business operation that the Plaintiffs allege caused their injuries. Fish has additionally exercised its control by requiring franchisees to pay employees an hourly wage during the training period, by requiring franchisees to financially reward employees who bring in a new referral, and by prohibiting franchisees from paying commission to employees, unless they bring in invoices signed by both the employee and the customer. Nor can Fish claim as a defense that the scenario under which it would exercise control over franchisee compensation is unrealistic. Under Wisconsin law the right to control and employer status can be established, even though the purported employer has not exercised any actual control over the purported employee. Tesch v. Industrial Commission, 200 Wis. 616, 626- 627 (1930) (Owner at all times had the right to control the contractor, even though authority to direct and control the work was given to the contractor, because the contractor’s right to direct and control the work was subject to revocation or modification by the principal at anytime); Maddox v. Hockgrove Brewing Co., 154 Wis. 448, 452-453 (1913) (Employee status found, even Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 27 of 28 28 though to date the employee controlled the details of his work, because the owner had the right to discharge the employee at anytime, can materially change the building plan at anytime, and claimed the right to determine how work will be performed in the event of disagreement). See also Raasch v. Dulany, 273 F. Supp. 1015, 1019 (E.D. WI. 1967) (Because right to control not actual control is determinative of the existence of an employer-employee relationship, denied employer motion for summary judgment despite its claim that in practice it exercised little control over the work performed by its licensees). 4. Conclusion. For the above stated reasons, Fish was the Plaintiffs’ employer under both the FLSA and Wisconsin law, so that Fish’s motion for summary judgment should be denied in its entirety. Respectfully submitted this 21st day of October, 2016. /s/ Yingtao Ho Yingtao Ho (SBN 1045418) THE PREVIANT LAW FIRM, S.C. 310 W. Wisconsin Avenue, Suite 100MW Milwaukee, WI 53203 Telephone: 414-271-4500 Fax: 414-271-6308 Case: 3:15-cv-00486-jdp Document #: 65 Filed: 10/21/16 Page 28 of 28
