Franchises Continue to Fight Joint Employment Claims

IMG_1074.JPGAre franchisors responsible for the wage and hour violations of their individually owned franchisees?

This question continues to vex the courts. (Vex! Great Scrabble word!) Despite the promise of more pro-business policies from the current administration, lawsuits filed by employees against franchisors show no signs of slowing down. Here’s why.

When employees allege wage and hour violations against individually owned franchisees (your local store), such as a failure to properly pay overtime, the employees usually try to convert that lawsuit into a class action.

For plaintiffs’ law firms bringing these lawsuits, the bigger the class, the better. Storewide is good; statewide is better; nationwide is best. If we colonize Mars, interplanetary class actions are sure to follow.

In an effort to find the deepe$t pocket$ and create the largest possible class, plaintiffs’ firms often sue not only the individual stores that had the allegedly unlawful practice, but also the national franchisor — even if the franchisor had little or no control over local pay practices.

Court are then asked to evaluate the role that franchisors play in the day-to-day operations of individually owned franchised locations.

Franchisors argue that they are allowed to establish and enforce brand standards to ensure consistency of products across the country. A roast beef sub in Truth or Consequences, New Mexico should taste the same as a roast beef sub in Walla Walla, Washington.

Plaintiffs, on the other hand, generally point to franchisors’ corporate manuals and national standards as evidence of an employer-employee relationship between the national franchisor and employees of the individually owned store.

These battles continue to wage throughout the country, with large national franchisors being sued. Some courts have sided with franchisors, finding that the need to establish uniformity of product and appearance is the very nature of what a franchise is — rather than being evidence of joint employment. Other courts have been more sympathetic to plaintiffs and have allowed franchisors to be drawn into the fray.

Companies using a franchise model can proactively reduce the risks of joint employment by carefully deliniating what they can and cannot control, with respect to the operation of individually owned stores. Thoughtful planning can help franchisors to avoid lawsuits ot to mount a successful defense against class certification.

The franchise model remains under attack. Franchisors should plan accordingly and act preemptively to best position themselves to avoid or defend these types of claims.

What’s Up? Black Car Drivers Are Independent Contractors. Here’s Why.

balloons-1786430_1280At the end of Pixar’s Up, Carl and Russell sit on a curb pointing out cars: “Red one!” “Blue one!” Then Dug (the dog) calls out “Gray one!” which I find endlessly funny every time I watch it.

Whatever color the car, they sat there content, eating ice cream.

Black car companies in New York are celebrating too (hopefully with ice cream), after a recent decision preserving their drivers’ status as independent contractors. In Salem v. Corporate Transportation Group, the Second Circuit Court of Appeals ruled that drivers were not entitled to overtime pay, since they were not employees, but rather independent contractor franchisees.

We’ve written often in this blog about the different tests for determining Who Is My Employee? This case was brought under the Fair Labor Standards Act (FLSA) and comparable New York law, so the Court applied an Economic Realities Test. This test measures whether workers are economically dependent on one company to earn a living or are in business for themselves.

Relying on the Economic Realities factors, the Court ruled the drivers were economically independent and were in business for themselves. Here are the keys to victory:

  1. The drivers purchased franchises, choosing from a variety of options (rent, own);
  2. The drivers used their own cars and paid all their own expenses;
  3. The drivers could drive for competitors or for personal clients;
  4. The drivers were entrepreneurs, controlling many significant aspects of their personal driving business;
  5. The drivers were free to accept or reject jobs;
  6. The drivers chose when, where, and how often to work; and
  7. The franchisor company could not freely terminate the drivers’ franchise agreements.

While independent contractor relationships remain under fire, this decision shows that there’s still hope. Companies can win these cases when they carefully construct the facts, relinquish control, and allow contractors to run their own enterprises.

Although these drivers had considerable discretion over how to run their individual businesses, none (unfortunately) had the creativity to ditch the car and transport customers in a helium-balloon powered house.  Now back to the film.

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