Free Smells! Jimmy John’s Avoids Franchisor Joint Liability

Joint employment jimmy john’s overtime litigation

The famous bank robber Willie Sutton supposedly once said that he robs banks “because that’s where the money is.” I doubt he said that since it seems rather incriminating. (“I’m sorry, your honor. What I meant is ‘If I did it…” See, Simpson, O.J.). But that’s the legend anyway. You can read more here on whether it’s true.

The strategy for plaintiffs in overtime cases is much the same. Sue the deepest pockets. That’s where the money is. When the deepest pocket is not your employer, allege joint employment.

That’s what happened in the recent overtime lawsuit against some Jimmy John’s franchise owners (the direct employers) and the franchisor (corporate Jimmy John’s). The lawsuit is cleverly titled In Re: Jimmy John’s Overtime Litigation. Like many lawsuits, the case has dragged on for four years. It has not been freaky fast.

Finally, in late June, a federal judge in Illinois ruled that — under the facts of this case — the franchisor is not a joint employer and cannot be responsible for any overtime violations.

In franchise situations, joint employment is a serious concern. When you order the #14 Bootlegger Club, you expect it to taste the same at every Jimmy John’s store. That’s the essence of franchising. An individual business owner signs a franchise agreement granting it the right to use a company’s intellectual property and requiring it to use the company’s business format and brand standards. The court summarized the Franchise Agreement like this:

The Franchise Agreement provides the franchisee with the license to use Jimmy John’s Intellectual Property, as well as the Jimmy John’s business format, which includes the methods, procedures, signs, designs, layouts, standards, and specifications for Jimmy John’s branded stores. In exchange, Jimmy John’s franchisees are obligated to: (1) make payments to Jimmy John’s, specifically, a certain percentage of their gross sales as a royalty and a separate percentage as a contribution to a national advertising fund; and (2) uphold the “Jimmy John’s Brand Standards” that are essential to the quality and consistency of the Jimmy John’s customer experience.

Does that uniformity make the franchisor a joint employer? The court here said No, but only after four years of intensive discovery as to the level of involvement the franchisor has in the terms and conditions of employment for franchisee employees.

Different courts use different tests for determining whether someone is a joint employer. In the Seventh Circuit (which includes Illinois), the standard for whether someone is a joint employer under the Fair Labor Standards Act (FLSA) is: “A joint employer relationship exists where each alleged employer exercises control over the working conditions of the employees.”

The court then tried to answer that question by applying a four-part test, analyzing whether the franchisor:

(1) had the power to hire and fire employees,

(2) supervised and controlled employee work schedules or conditions of payments,

(3) determined the rate and method of payment, and

(4) maintained employment records.

The court acknowledged that other factors could be considered, but these were the most important.

Dear reader, allow me to interrupt this compelling tale with a reminder about our legal system: Not helpfully, different courts will use different factors to determine whether there joint employment under the FLSA (and courts in the Fourth Circuit will apply a different test entirely). So this test might or might not apply to you.

The court extensively analyzed these factors and ruled that the franchisor was not a joint employer because it did not involve itself in the day-to-day individual employment decisions would be required to find joint employment. (If you want more detail, you can read the decision here or a more extensive analysis by my colleague Greg Mersol here.)

The franchise model remains under attack. The International Franchise Association has been active in trying to promote reform of the U.S. joint employment standard. They want a test that helps assure franchisors that they can sign franchisees without subjecting themselves to lawsuits any time the individual business owners make employment law errors.

Efforts are underway in Congress to pass clarifying legislation, and the NLRB is beginning the process to change the standard through rulemaking, but none of this will happen freaky fast.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 191 other followers