FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS October 3, 2018
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
R. ALEXANDER ACOSTA, Secretary of
Labor, United States Department of Labor,
Plaintiff - Appellant,
No. 17-6179
v.
JANI-KING OF OKLAHOMA, INC., a
foreign corporation,
Defendant - Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. 5:16-CV-01133-W)
Dean 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.
Aaron 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.
Before LUCERO, McKAY, and MORITZ, Circuit Judges.
McKAY, Circuit Judge.
This 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 reverse.
Jani-King 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.
Following 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.)
Jani-King 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
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franchisees as necessary parties.1 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 appeals.
We 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
1
In its order addressing Jani-King’s first motion to dismiss, the district court determined
there was “no basis for dismissal under Rule 12(b)(7)” because Jani-King failed to
address whether joinder of the franchisees was feasible. (Appellant’s App. at 77.)
Though Jani-King again raised this claim in its motion to dismiss the Secretary’s
amended complaint, the district court’s second order did not address the Rule 12(b)(7)
argument, and it is not before this court on appeal.
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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.
Under 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.
Here, 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
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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].)
As 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
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(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
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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.)
Jani-King 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. Cf. Sec’y of Labor v. Labbe, 319 F. App’x 761, 763-64 (11th Cir. 2008) (“Unlike
the complex antitrust scheme at issue in Twombly that required allegations of an
agreement suggesting conspiracy, the requirements to state a claim of a FLSA violation
are quite straightforward.”)
Jani-King complains that because the amended complaint did not mention a single
franchise owner by name and did not include any allegations specific to any one
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individual, it failed to inform Jani-King of the grounds for the Secretary’s claims against
the company. See Robbins, 519 F.3d at 1247, 1249-50. In making this argument, Jani-
King repeatedly suggests that this case involves multiple defendants: Jani-King and the
franchisees. (See, e.g., Appellee’s Br. at 20 [“In a complex, multi-actor case like this
one, a plaintiff must . . . mak[e] specific allegations regarding each actor.”], 24 [“[T]he
Secretary pleads conclusory, uniform allegations against unnamed Jani-King Franchise
Owners.”].) This is an inaccurate reading of the amended complaint. The Secretary does
not allege the franchisees have committed any FLSA violations. Rather, the amended
complaint asserts that Jani-King—the sole defendant in the case—violated the FLSA by
failing to keep records for its “employees,” defined in the pleading as “individuals who
personally perform the janitorial cleaning work as designated by Defendant.”
(Appellant’s App. at 80-81.) Jani-King has full notice of the alleged wrongdoing. The
Secretary need not plead specific facts with regard to each individual franchise owner
where it has made clear (1) the specific act of wrongdoing in which Jani-King allegedly
engaged, i.e., violating recordkeeping requirements; and (2) the descriptive identity of
those individuals or entities to whom those requirements allegedly apply, i.e., Janitorial
Cleaners who personally perform the work and, based on the factual allegations in the
complaint, plausibly qualify as FLSA employees due to the economic reality of their
relationship with Jani-King. Although the amended complaint did not specifically name
the individuals or entities who allegedly trigger the recordkeeping requirements of the
FLSA, the amended complaint’s factual allegations are nevertheless sufficient at the
pleading stage to give Jani-King notice of which franchisees might be implicated by this
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action. Cf., Grubbs v. Kanneganti, 565 F.3d 180, 191 (5th Cir. 2009) (holding that
defendants received adequate notice in a False Claims Act case where the complaint
alleged a scheme to submit false claims and enough details that the defendants—who
“will be in possession of the most relevant records, such as patients’ charts, doctors’
notes, and internal billing records”—could adequately investigate and defend the claims).
Moreover, the amended complaint’s allegations suggest that the identity of these
individual Janitorial Cleaners—and thus the extent of Jani-King’s alleged wrongdoing—
will be made apparent during discovery. Cf. Twombly, 550 U.S. at 556 (“Asking for
plausible grounds to infer an agreement does not impose a probability requirement at the
pleading stage; it simply calls for enough facts to raise a reasonable expectation that
discovery will reveal evidence of illegal agreement.”); Grubbs, 565 F.3d at 190
(requiring a plaintiff to know all of the exact details of his claim “is one small step shy of
requiring production of actual documentation with the complaint, a level of proof not
demanded to win at trial and significantly more than any federal pleading rule
contemplates”). Lastly, as the Secretary argues, the individual identities of the Janitorial
Cleaners are not necessary at the pleading stage because the complaint is not seeking any
individualized relief. Cf. Shook v. El Paso Cnty., 386 F.3d 963, 972 (10th Cir. 2004)
(lack of identifiability of class members is not a factor when seeking certification of a
class for injunctive relief under Federal Rule of Civil Procedure 23(b)(2)).
For these reasons, we conclude that the Secretary’s amended complaint contains
sufficient factual matter to state a facially plausible claim for relief. The complaint
identifies individuals (those who “personally perform the janitorial cleaning work”) who
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could qualify as Section 203(e)(1) “employees” under the economic realities test if all the
Secretary’s well-pleaded factual allegations about the nature of the relationship between
Jani-King and these individuals are accepted as true and viewed in the light most
favorable to the Secretary. The complaint also alleges that Jani-King has violated the
FLSA as to these employees by failing to comply with recordkeeping requirements.
These allegations are sufficient to state a claim at this stage of the proceedings. In so
concluding, we make no determination as to the merits of the Secretary’s case—we only
hold that it survives this initial Rule 12(b)(6) motion to dismiss.
We accordingly REVERSE and REMAND for further proceedings.
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