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4 | Monday, august 11, 2014 | Commercial Litigation
| nylj.com

exercised over any franchisee employee did

By Jonathan StoLer, not rise to the requisite level to cast SerVPrO
Carren B. ShuLman as a joint employer.
anD Dana DunwooDy
The U.S. District Court for the District
F of Arizona reached a similar conclusion in
ranchisors are finding that they have Courtland v. GCEP-Surprise. In Courtland, an
to toe an increasingly fine line between employee sued her employer, GCeP-Surprise,
setting quality control standards across
a Buffalo wild wings (Bww) franchisee, alleg-
national franchises and opening the door wide ing sexual harassment and discrimination
to wage and hour, discrimination, retaliation, by management in violation of Title VII. The

or any of a litany of employment-related law- employee brought suit against the franchisor
suits brought by employees of their individual under joint employer and agency theories of
franchisees. Franchisors should heed the liability. Following other circuit courts’ juris-
message of recent court decisions and take prudence, the court in Courtland explained
a close look at the level of control over fran- that franchisors cannot be joint employers
chise employees indicated by their global without possessing “significant control over
policies—because such control can lead to the employment relationship.”9 More specifi-
liability under an agency or joint employer cally, “[e]mployee and operational supervi-
Overcoming
theory. This article explores the Southern sion does not equate joint employment if the

District of New York’s recent case involving franchisor exercises it for a specific purpose
Domino’s Pizza, which permitted the fran- and it is different than the control exercised
chisor to be joined as a defendant in a Fair by an employer.”10 Ultimately, the court
Labor Standards Act (FLSA) lawsuit, analyzes granted Bww’s summary judgment motion,
Confusion
cases in which district court judges in other noting that “[i]mportantly, no training was
jurisdictions granted summary judgment in provided regarding the hire, retention, disci-
favor of franchisors in the FLSA context, and pline, compensation, training or recordkeep-
finally suggests best practices for franchisors ing for employees[, and] ... Bww [did] not

For Franchisors
seeking to avoid employment liability.
dictate any policies, procedures, or behavior
of [its] franchisees in relation to employment
‘Domino’s Pizza’
matters.”11
The Arizona and Mississippi federal courts
In Cano v. DPNY,1 delivery employees are the not only ones being asked to rule
filed a lawsuit against their Domino’s Pizza on this issue. earlier this year, employees
Manage joint employer liability franchisee-employers for unpaid wages and of McDonald’s franchisees nationwide filed
overtime. Thereafter, the plaintiffs success- suit in California,12 New York,13 and Michigan14
under the FlsA.
fully joined Domino’s Pizza (Domino’s) as a alleging various wage and hour overtime

defendant under the joint employer theory.2 violations. In each filing, the plaintiffs also
In support of their argument that Domino’s named corporate franchisor McDonald’s as
should be held jointly liable for any damages a defendant. Many of the plaintiffs’ claims
resulting from their claims, the plaintiffs con- mirror practices alleged to be unlawful in
tended that Domino’s had sufficient control similar suits, including failing to pay for all
over training and setting of management poli- hours worked, forcing expense deductions
cies to qualify as a joint employer of the fran- which bring workers’ wages under the lawful
chisees’ employees. Plaintiffs further argued minimum, and denying required meal times
LJ
that Domino’s use of a computerized time- and rest periods. In each suit, the franchisor NY
keeping system gave the franchisor access to has been brought in as a defendant under the CK,
sufficient information about its franchisee’s joint employer theory of liability. It remains STO
employees to allow it to determine whether to be seen whether McDonald’s will be held BIG
its franchisee’s employees were being paid in liable as an employer in each of the cases,
accordance with applicable wage/hour laws. but recent decisions show that courts across
Finally, plaintiffs argued that Domino’s abil- plan. Domino’s made some fee concessions unpaid wages.8 The U.S. District Court for the circuits are not rushing to spread liability
ity to terminate a franchise if the franchisee to the franchisee, which made settlement pos- the Southern District of Mississippi used the equally between franchises and their fran-
was violating any law or company policy sible.3 Cano serves to caution franchisors that “economic reality test” to determine whether chisors.

equated to control over the franchisee’s establishing a franchisor’s day-to-day control SerVPrO qualified as an employer of the
payroll compliance such that Domino’s had is not necessary to find it and the franchisee plaintiff, and considered whether SerVPrO Suggested Best Practices for Franchisors
functional and operational control over the are joint employers.
had (i) the power to hire or fire employees;
franchisee-employees. Although Magistrate (ii) the authority to supervise and control Significantly, none of the aforementioned
Judge James Francis ultimately found these Franchisors Are Generally Not Employers
the plaintiff; (iii) the right to determine the cases suggest a change in the analysis to be
arguments persuasive, he acknowledged rate and method of payment for the hours applied at the fact-finding stage (i.e., trial, arbi-
that the allegations remained to be proven. Despite some exceptions,4 “courts have worked; and (iv) maintained employment tration) with respect to ultimate liability of
Nonetheless, the court granted the joinder been nearly uniform in holding that a franchi- records. The court ultimately granted sum- the franchisor as a joint employer. Moreover,
motion despite the lack of allegations that sor should not be deemed to be an ‘employer’ mary judgment in favor of SerVPrO, holding a typical franchise agreement includes stan-

Domino’s specifically had control over hir- ... when plaintiff works for an independently that the franchisor was not a joint employ- dard protective indemnification provisions
ing, firing, or payroll decisions—allegations owned franchise.”5 Two recent cases that take er. The court reached this conclusion even obligating the franchisee to indemnify and
that are regularly required to establish joint this majority approach are Reese v. Coastal though SerVPrO exercised some control defend the franchisor in the event of a lawsuit,
employment. when the original defendant, Restoration & Cleaning Services6 and Court- over the operations of its franchises and and requiring a minimal level of insurance to
DPNY, filed for bankruptcy, the case settled land v. GCEP-Surprise.7
the employment of its franchises’ employees. cover franchisor’s legal fees and expenses,
as a part of the franchise’s reorganization
In Reese, an employee sued his employ- For example, (i) SerVPrO’s quality control as well as prospective damages. Therefore,
er, Coastal restoration & Cleaning Services standards may have authorized the sharing a franchisor should have some protection
(Coastal), a franchisee of SerVPrO Industries, of results from employee background checks against an employment suit by its franchi-

Jonathan StoLer is a partner at Sheppard, Mullin, alleging unpaid overtime wages under the with SerVPrO, (ii) SerVPrO set franchise- see’s employees. However, as described
Richter & Hampton in New York, Dana DunwooDY is FLSA. The employee brought his suit against wide equipment and products standards, herein, some courts have found, at least
a partner in the Del Mar office, and Carren B. ShuL- the franchisor under the joint employer and (iii) SerVPrO set the forms by which at the pleading stage, that franchisors may
man is a partner in the New York office. raCheL theory. Joint employers under the FLSA may franchisees have to report their books and qualify as joint employers. Thus, in addition
tiSChLer, an associate in New York, assisted in the be found liable for any damages, including records. Nevertheless, the court found the to ensuring that franchisors’ form franchise
preparation of this article.
liquidated damages, owing to employees for
degrees of control that SerVPrO may have
agreements containing strong » Page 11