New Developments In The Joint Employer Debate
In a previous issue of Avanti, we described an initiative of the National Labor Relations Board (NLRB) and the United States Department of Labor, which some have characterized as a frontal assault on the franchise model as we know it. The NLRB has alleged that McDonald’s as a franchisor is jointly liable along with its franchisees for any violations of law by employees of the franchisees. Those proceedings before the NLRB have been bogged down in discovery disputes and are not likely to come to trial any time soon. For more detail, you can visit the NLRB website at https://www.nlrb.gov/news-outreach/news-story/nlrb-office-general-counsel-authorizes-complaints-against-mcdonalds.
However, this past September the United States District Court for the Northern District of California found, in a so-called wage theft case, that McDonald’s was in fact not the joint employer of the franchisee’s employees. This created some optimism on the part of both franchisee and franchisor advocates, who are (or ought to be) on the same page in their opposition to this joint employer theory.
The joint employer initiative has also been championed by the U.S. Department of Labor. The head of its Wage and Hour Division, Dr. David Weil, has publicly supported a more widespread application of this theory as a way of increasing wage and hour compliance. Just a few weeks ago, new guidelines were issued on how the U.S. Department of Labor will apply the joint employment theory in the labor context. Details can be found at http://blog.dol.gov/2016/01/20/are-you-a-joint-employer.
This past October, in my capacity as a member of the Governing Committee of the American Bar Association Forum on Franchising, I was privileged to co-moderate a panel consisting of Dr. Weil and Richard Griffin, General Counsel to the NLRB. While they both denied that their goal was to disrupt or dismantle the franchise model, they did not retreat from their overall stated goals.
These concerns are not theoretical for 7-Eleven franchisees. It has recently come to my attention that the U.S. Department of Labor investigated two 7-Eleven franchisees in a particular city and assessed overtime penalties with respect to an employee that worked at both locations. The two franchisees in question (who will not be identified by name or geographic location in this article) are entirely separate operations. Each has its own corporation and Employer Identification Number. Neither of the two franchise locations share managers or perform management services for the other. Neither of the two franchise locations have any ownership interest in the other. In short, while they are both franchisees of SEI, they have no other relationship other than the fact that a single employee works at both locations. As it happens, the combination of the hours worked in a week by the single employee at both locations exceeded 40 in a number of instances. Nevertheless, the U.S. Department of Labor treated these two completely independent franchised locations as a single entity and made each liable for their pro rata share of the overtime assessment.
In a related development, in January, a court in Massachusetts was confronted by a seemingly similar but in many ways different fact pattern. In this non-franchise case, a manager sued the parent company of a chain of restaurants as well as the separate corporations that own each of the individual restaurants in the chain. The claim was that the parent company, as well as the separately incorporated restaurant locations, were part of a single integrated enterprise and thus, each was liable to the other for all debts and liabilities, including those related to wage act claims. The difference between this Massachusetts case and the facts involving the SEI franchisees is that the ownership of the parent company, as well as the ownership of the individual restaurant locations, was all the same. For this reason, the Massachusetts court held that the plaintiff could proceed against the parent corporations, as well as all of the individual restaurant locations.
These facts are not transferable to the franchise context. In the example quoted above, neither of the franchised locations has an ownership interest in the other. In addition, as we all know, neither SEI nor the franchisees have an ownership interest in the other.
We have carefully researched the law and found a 2007 decision in a case entitled Singh v. 7-Eleven. In that case, the court found that SEI was not the joint employer of the employees of the franchisee. The court used what it referred to as the “economic reality test,” finding that SEI did not have the power to hire and fire the employees, did not exercise supervision and control over employee work schedules or the conditions of employment, did not determine the rate or the method of payment of the employees, and did not maintain employment records. We believe that this 2007 decision, as well as publications issued by the U.S. Department of Labor, clearly show that the 7-Eleven franchisees referred to above should not have been assessed overtime for their common employee.
As we have repeatedly stated in this space in the past, there are many issues on which SEI and the National Coalition could and should collaborate for their mutual benefit. We have also stated in the past that neither SEI nor the franchisees would benefit from the imposition of joint employer liability. The case described above involving neighboring 7-Eleven franchisees is a current and highly relevant example of an instance where that kind of cooperation would benefit all concerned. We look forward to engaging with SEI on this issue and to keeping you informed of future developments as they occur.