R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor, Plaintiff - Appellant,
JANI-KING OF OKLAHOMA, INC., a foreign corporation, Defendant-Appellee.
FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF OKLAHOMA (D.C. No. 5:16-CV-01133-W)
A. Romhilt, Senior Attorney (Kate S. O'Scannlain,
Solicitor of Labor, Jennifer S. Brand, Associate Solicitor,
and Paul L. Frieden, Counsel for Appellate Litigation, with
him on the briefs), United States Department of Labor, Office
of the Solicitor, Washington, D.C., for Plaintiff-Appellant.
D. Van Oort, Faegre Baker Daniels LLP, Minneapolis, Minnesota
(John T. (Ted) Koehler, Faegre Baker Daniels LLP, Denver,
Colorado, and Stacy R. Obenhaus, Gardere Wynne Sewell,
Dallas, Texas, with him on the brief) for Defendant-Appellee.
LUCERO, McKAY, and MORITZ, Circuit Judges.
appeal arises out of the district court's dismissal with
prejudice of the Secretary of Labor's complaint against
Jani-King of Oklahoma, Inc. For the reasons below, we
is a janitorial company providing cleaning services in the
Oklahoma City area. The company engages individuals, pairs of
related individuals, or small corporate entities which are
allegedly composed predominantly or entirely of single
individuals or pairs of related individuals to perform
janitorial work on its behalf through franchise arrangements.
Jani-King recently began requiring individuals and pairs of
related individuals-both those already affiliated with
Jani-King and those who are new-to form corporate entities,
which then become the named parties to the franchise.
an investigation into Jani-King's employment practices,
the Secretary of Labor filed a complaint against Jani-King,
alleging violations of the Fair Labor Standards Act and
seeking an injunction to require Jani-King to keep the
requisite FLSA employee records. Specifically, the Secretary
asserted that individuals who form corporate entities and
enter franchise agreements as required by Jani-King
"nonetheless personally perform the janitorial work on
behalf of Jani-King" and, based on the economic
realities of this relationship, are Jani-King's employees
under the FLSA. (Appellant's Opening Br. at 5.)
filed a motion to dismiss on two grounds: (1) under Rule
12(b)(6), the Secretary failed to plausibly suggest that
every franchise owner should be treated as an employee under
the FLSA, and (2) under Rule 12(b)(7), the Secretary failed
to name the franchisees as necessary parties. The district
court granted Jani-King's Rule 12(b)(6) motion and
dismissed the Secretary's complaint without prejudice.
The Secretary then filed an amended complaint alleging that
the individuals who personally perform the janitorial
cleaning work for Jani-King through the franchise
arrangements are employees under the FLSA, and asking that
Jani-King be required to keep records about those
individuals. In response, Jani-King raised the same Rule
12(b)(6) and 12(b)(7) motions, arguing that the Secretary is
not free to ignore its corporate organization. The district
court again granted Jani-King's Rule 12(b)(6) motion-this
time with prejudice- concluding the amended complaint
"ignores corporate forms" and does not plausibly
suggest the FLSA applies to all janitorial cleaners.
(Appellant's App. at 183 & n.9.) The Secretary now
review de novo the district court's grant of a motion to
dismiss pursuant to Rule 12(b)(6). SEC v. Shields,
744 F.3d 633, 640 (10th Cir. 2014). Under this standard,
"all well-pleaded factual allegations in the complaint
are accepted as true and viewed in the light most favorable
to the nonmoving party," Moore v. Guthrie, 438
F.3d 1036, 1039 (10th Cir. 2006) (internal quotation marks
and ellipsis omitted), but the pleadings must "contain
sufficient factual matter . . . to state a claim to relief
that is plausible on its face," Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation
marks omitted). To achieve "facial plausibility," a
plaintiff must plead "factual content that allows the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged." Id.
the FLSA, employees of covered employers are afforded minimum
wage and overtime pay protections. See 29 U.S.C.
§§ 206(a), 207(a). The Act defines
"employee" as "any individual employed by an
employer." 29 U.S.C. § 203(e)(1).
"Employ" means to "suffer or permit to
work." Id. § 203(g). An FLSA employer is
required to maintain certain records "prescribe[d] by
regulation" regarding the "persons employed"
by it, 29 U.S.C. § 211(c), including records regarding
minimum wage and overtime pay, 29 C.F.R. 516.2. The FLSA
gives the Secretary authority to investigate employers'
compliance with these recordkeeping requirements and to seek
injunctive relief against employers who violate those
provisions of the Act. See 29 U.S.C. §§
211(a), 215(a)(5), 217.
the Secretary's amended complaint alleged that Jani-King
violated the FLSA because it did not "mak[e], kee[p],
and preserv[e] the required records" for
"Janitorial Cleaners . . .who personally perform the
janitorial cleaning work as designated by Defendant"
"as a result of improperly classifying these individuals
as independent contractors when they are, in fact,
employees." (Appellant's App. at 80-81 (internal
quotation marks omitted).) The amended complaint acknowledged
that many of these "Janitorial Cleaners" are
individuals or "corporate entities owned by one or
sometimes two individuals" who have entered franchise
agreements with Jani-King, but alleged a series of facts to
show that, per the six-factor economic realities test, these
individual Janitorial Cleaners are employees under the FLSA.
(Id.) The district court, however, determined 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.'" (Id. at 182.) The court
further explained that the Secretary's complaint did
"not distinguish between those Janitorial Cleaners
procured to perform cleaning services who are artificial
entities and those Janitorial Cleaners who are
individuals," instead lumping together all Janitorial
Cleaners procured through franchise agreements in
"conclusory fashion." (Id. at 182-83.) The
court ultimately concluded that "[b]ecause the factual
allegations in the amended complaint do not plausibly suggest
that the FLSA applies to, and protects, all Janitorial
Cleaners as that term is used in this case, the Secretary has
not nudged his claim across the line from conceivable to
plausible." (Id. at 183 [internal quotation
marks and punctuation omitted].)
Jani-King conceded at oral argument, 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." (May 15, 2018 Oral
Argument at 13:30-13:49.) In framing the amended complaint
this way, the district court's order improperly ignores
the economic realities test. It is well settled that the
economic realities of an individual's working
relationship with the employer-not necessarily the label or
structure overlaying the relationship-determine whether the
individual is an employee under the FLSA. See, e.g., Tony
& Susan Alamo Found. v. Sec'y of Labor, 471 U.S.
290, 301 (1985); Goldberg v. Whitaker House Coop.,
Inc., 366 U.S. 28, 32-33 (1961); Rutherford Food
Corp. v. McComb, 331 U.S. 722, 729 (1947); Dole v.
Snell, 875 F.2d 802, 804 (10th Cir. 1989) ("[T]he
Supreme Court has directed that the economic realities of the
relationship govern."). In determining whether an
individual is an employee under the FLSA, the inquiry is not
limited to the contractual terminology between the parties or
the way they choose to describe the working relationship.
See Henderson v. Inter-Chem Coal Co., 41 F.3d 567,
570 (10th Cir. 1994); Dole, 875 F.2d at 804. Other
circuits have adopted this same rule. See, e.g.,
Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311
(11th Cir. 2013) ("[The] inquiry is not governed by the
'label' put on the relationship by the parties or the
contract controlling that relationship."); Sec'y
of Labor v. Lauritzen, 835 F.2d 1529, 1544-45 (7th Cir.
1987) ("The FLSA is designed to defeat rather than
implement contractual arrangements. . . . '[E]conomic
reality' rather than contractual form is indeed
dispositive."); Robicheaux v. Radcliff Material,
Inc., 697 F.2d 662, 667 (5th Cir. 1983) ("[A]n
employee is not permitted to waive employee status,"
despite having signed independent contractor agreements.). To
determine whether an individual is an employee under the
FLSA, courts apply the six-factor economic realities test,
which considers "(1) the degree of control exerted by
the alleged employer over the worker; (2) the worker's
opportunity for profit or loss; (3) the worker's
investment in the business; (4) the permanence of the working
relationship; (5) the degree of skill required to perform the
work; and (6) the extent to which the work is an integral
part of the alleged employer's business." Baker
v. Flint Eng'g & Constr. Co., 137 F.3d 1436,
1440 (10th Cir. 1998). Thus, where the Secretary has alleged
that Jani-King violated FLSA recordkeeping requirements with
respect to "individuals . . . who personally perform the
janitorial cleaning work as designated by Defendant,"
the fact that these individuals are franchisees or have
formed corporations does not end the inquiry.
(Appellant's App. at 80-81.)
argues, however, that the Secretary's complaint should
still be dismissed because the Secretary has not alleged
sufficient factual allegations to make a plausible FLSA claim
as to each actor. Most of the cases Jani-King cites in
support of this argument are civil rights cases against
multiple government entities and officials where the
defendants generally sought dismissal on qualified immunity
grounds. See, e.g., Pahls v. Thomas, 718
F.3d 1210 (10th Cir. 2013); Brown v. Montoya, 662
F.3d 1152 (10th Cir. 2011); Kan. Penn Gaming, LLC v.
Collins, 656 F.3d 1210 (10th Cir. 2011); Robbins v.
Oklahoma, 519 F.3d 1242 (10th Cir. 2008); Tonkovich
v. Kan. Bd. of Regents, 159 F.3d 504 (10th Cir. 1998).
This court has previously recognized that "[t]he
Twombly standard may have greater bite in such
contexts, appropriately reflecting the special interest in
resolving the affirmative defense of qualified immunity at
the earliest possible stage of a litigation."
Robbins, 519 F.3d at 1249 (internal quotation marks
omitted). But this is not a qualified immunity case, and no
such heightened Twombly standard applies here.