NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS FEB 27 2019

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

SERGE HAITAYAN; JASPREET No. 18-55462

DHILLON; ROBERT ELKINS;

MANINDER LOBANA, individually, and D.C. No. on behalf of others similarly situated, 2:17-cv-07454-JFW-JPR

Plaintiffs-Appellants,

MEMORANDUM*

v.

7-ELEVEN, INC., a Texas corporation,

Defendant-Appellee.

Appeal from the United States District Court for the Central District of California John F. Walter, District Judge, Presiding

SERGE HAITAYAN; JASPREET No. 18-55910

DHILLON; ROBERT ELKINS; 18-56346

MANINDER LOBANA,

D.C. No. Plaintiffs-Appellants, 2:18-cv-05465-DSF-AS

v.

7-ELEVEN, INC., a Texas corporation,

Defendant-Appellee.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appeal from the United States District Court for the Central District of California Dale S. Fischer, District Judge, Presiding

Argued and Submitted February 13, 2019 Pasadena, California

Before: FISHER, CALLAHAN and OWENS, Circuit Judges.

In No. 18-55462 (Haitayan I), plaintiff-franchisees appeal the district court’s

grant of judgment on the pleadings on their claims that franchisor 7-Eleven

misclassified them as independent contractors rather than employees in violation of

the Fair Labor Standards Act and the California Labor Code. In Nos. 18-55910

and 18-56346 (Haitayan II), the plaintiffs appeal the order of the district court

denying their motion for a preliminary injunction and corrective notice regarding

7-Eleven’s distribution of a franchise renewal agreement requiring franchisees to

release their wage-and-hour claims in Haitayan I. We vacate and remand in both

appeals.

A. Haitayan I

1. We vacate the judgment on the pleadings. See Doe v. United States,

419 F.3d 1058, 1061 (9th Cir. 2005). In addressing the adequacy of the plaintiffs’

federal and state law claims, the court erred in two respects. First, it considered the

persuasiveness of the plaintiffs’ factual allegations rather than the plausibility of

the plaintiffs’ legal claims. This was error. See Turner v. Cook, 362 F.3d 1219,

1225 (9th Cir. 2004) (stating that we must “accept all factual allegations in the

2 complaint as true and construe them in the light most favorable to [the non-moving

party]” (citation omitted) (alteration in original)). Second, the court focused on the

franchise agreement but did not consider the plaintiffs’ allegations regarding 7-

Eleven’s actual control. This too was error. See Estrada v. FedEx Ground

Package Sys., Inc., 64 Cal. Rptr. 3d 327, 335 (Ct. App. 2007) (in conducting a

misclassification analysis, “[t]he parties’ label is not dispositive and will be

ignored if their actual conduct establishes a different relationship”); see also Real

v. Driscoll Strawberry Assocs. Inc., 603 F.2d 748, 755 (9th Cir. 1979) (“Economic

realities, not contractual labels, determine employment status for the remedial

purposes of the FLSA.”). Accordingly, we vacate the district court’s judgment on

the pleadings without prejudice to 7-Eleven seeking judgment as a matter of law at

a later stage in the proceedings.

2. Following the district court’s entry of judgment, the California

Supreme Court decided Dynamex Operations West, Inc. v. Superior Court, 416

P.3d 1 (Cal. 2018). We leave it to the district court in the first instance to address

the extent to which Dynamex applies to the plaintiffs’ claims, including the parties’

contentions regarding retroactive application of Dynamex. In addition, the district

court is advised that this court is currently considering the application of Dynamex

to franchisees in Vazquez v. Jan-Pro Franchising Int’l Inc., No. 17-16096, argued

December 18, 2018. To the extent appropriate, proceedings in the district court

3 may be stayed pending this court’s decision in Vazquez.

3. Because we vacate the underlying judgment, we need not address the

district court’s taxation of costs. Because we can consider Massachusetts and

California state court decisions without taking judicial notice, we deny the

plaintiffs’ motions for judicial notice. See No. 18-55462, Dkts. 12, 28.

B. Haitayan II

1. We also vacate the denial of preliminary injunctive relief and

corrective notice. See Earth Island Inst. v. Carlton, 626 F.3d 462, 468 (9th Cir.

2010). Under California law, an employee may not waive a wage-and-hour claim

by contract. See Cal. Labor Code §§ 206.5, 2804. This rule is relevant to the

preliminary injunction factors at issue here, including the likelihood of success on

the merits, irreparable harm and the balance of equities. The district court,

however, did not consider this California rule. We therefore vacate the denial of

relief and remand for reconsideration. We are concerned that the plaintiffs’ request

for relief is time sensitive. Franchisees are required to sign the challenged waivers

in April 2019. We therefore urge the district court to address the plaintiffs’

requests for relief on an expedited basis.

2. Because they may arise on remand, we also provide guidance to the

district court on several of the other issues raised on appeal. See United States v.

Hernandez-Vasquez, 513 F.3d 908, 917 (9th Cir. 2008).

4 a. Likelihood of Success on the Merits

In addressing the likelihood of success on the merits, the district court relied

on Ahussain v. GNC Franchising, LLC, 2008 WL 11336812 (C.D. Cal. Mar. 19,

2008). The plaintiffs contend this reliance was unwarranted. We agree. Ahussain

applies to general releases in franchise renewal agreements, but it does not address

California’s prohibition on the contractual waiver of the plaintiffs’ claims. The

district court should bear this distinction in mind on remand.

We reject 7-Eleven’s suggestion that the waiver is permissible as a

settlement. Labor claims may be settled only by release and payment, which has

not occurred here. See Watkins v. Wachovia Corp., 92 Cal. Rptr. 3d 409, 417 (Ct.

App. 2009).

We also reject 7-Eleven’s contention that the plaintiffs are contractually

obligated to sign the general release because the franchise agreements they signed

in 2004 said a general release would be required for renewal. 7-Eleven has not

shown that this provision negates California’s prohibition on contractual waiver of

wage-and-hour claims.

b. Irreparable Harm

Although putative class members must sign the waiver to protect their

livelihoods, it is not clear how 7-Eleven will proceed once they sign. The district

court correctly noted that if class members are ultimately found to be employees,

5 the waiver will likely be deemed unconscionable and unenforceable. If they are

ultimately found to be independent contractors, however, 7-Eleven may attempt to

hold them in breach of contract for participating in Haitayan I. These uncertainties

place franchisees in a difficult position. If they do not sign the waiver, they may

forfeit their livelihoods. If they sign the waiver, they may have to choose between

(1) participating in Haitayan I (as parties or witnesses), thereby risking civil

liability for breach of contract, or (2) foregoing their right to participate in

Haitayan I. This uncertainty imposes immediate and irreparable harm by deterring

franchisees from participating in the case. This harm warrants consideration on

remand.

c. Balance of the Equities

With regard to the balance of the equities, the district court focused on the

public interest in enforcing valid contracts but did not consider California’s interest

in allowing colorable wage-and-hour claims to proceed. The plaintiffs argue that

the court should have done so, and we agree. The public interest here is

substantial. See Dynamex, 416 P.3d at 5 (“[T]he misclassification of workers as

independent contractors rather than employees is a very serious problem, depriving

federal and state governments of billions of dollars in tax revenue and millions of

workers of the labor law protections to which they are entitled.”). In balancing the

equities, the district court should also consider the parties’ relative size and

6 strength. See Int’l Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 827 (9th

Cir. 1993).

C. Consolidation

To serve the interest of judicial efficiency, and for the convenience of the

parties, we encourage the district court to consolidate these two cases before a

single district judge.1

D. Conclusion

In No. 18-55462, the appellants’ motions for judicial notice, filed October 1,

2018 (Dkt. 12), and December 21, 2018 (Dkt. 28), are DENIED.

In No. 18-55462, the judgment is vacated and the case is remanded. In Nos.

18-55910 and 18-56346, the order of the district court is vacated and the case is

remanded.

In Nos. 18-55462, 18-55910 and 18-56346, costs of appeal are awarded to

the plaintiffs.

In Nos. 18-55462, 18-55910 and 18-56346, no petitions for rehearing will be

entertained and the mandates shall issue forthwith. See Fed. R. App. P. 2.

VACATED AND REMANDED.

1 At oral argument, both parties agreed consolidation would be appropriate.

7