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The Franchise Memorandum

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After denying a motion to dismiss, a federal court in New Jersey has now refused to grant summary judgment to a franchisor on racial discrimination and other employment-related claims asserted by its franchisee’s employee. Ward v. Cottman Transmission Sys., LLC, 2022 WL 909637 (D.N.J. Mar. 29, 2022).

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A federal court in Illinois recently dismissed a franchisee employee’s Title VII hostile work environment and related Illinois state-law claims against the franchisor. Budzyn v. KFC Corp., 2022 WL 952746 (N.D. Ill., Mar. 30, 2022).

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A federal court in Illinois denied Subway’s motion to dismiss a claim that it violated the Illinois Biometric Information Privacy Act (BIPA) by failing to obtain a franchisee’s employee’s consent for the collection and possession of the employee’s fingerprints. Ronquillo v. Doctor’s Assocs., LLC, 2022 WL 1016600 (N.D. Ill. Apr. 4, 2022).

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A federal court in New York recently denied judgment on the pleadings for two franchisors in a wage and hour putative class action involving franchisee employees. McArdle-Bracelin v. Congress Hotel, LLC, 2022 WL 486805 (N.D.N.Y. Feb. 17, 2022).

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A federal district court in New York granted franchisor Just Salad’s motion for summary judgment on all claims against it and against various franchisees who never employed the plaintiffs. Tecocoatzi-Ortiz, v. Just Salad, LLC, 2022 WL 596831 (S.D.N.Y. Feb. 25, 2022).

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A federal court in California has recently ruled that a group of former 7-Eleven franchisees were not employees of 7-Eleven. Haitayan v. 7-Eleven, Inc., 2021 WL 4078727 (C.D. Cal. Sept. 8, 2021).

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A divided panel of the Second Circuit Court of Appeals has concluded that claims of improper wage deductions and unjust enrichment against a franchisor were properly dismissed because the plaintiffs agreed to deductions in exchange for valuable franchise rights.

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A federal court in Missouri recently denied a motion by McDonald’s to dismiss an employment discrimination claim brought against it by a franchisee’s former employee.

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A federal court in New York recently dismissed a franchisee’s employee’s discrimination claim against a franchisor because the franchisor was not her joint employer.

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The California Supreme Court has held that its Dynamex decision applies retroactively, answering a question certified to it by the Ninth Circuit in Vazquez v. Jan-Pro Franchising Int’l, Inc., --- P.3d ---, 2021 WL 127201 (Cal. 2021).

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In another case involving joint employer allegations, a federal court in Massachusetts denied a motion to dismiss brought by Enterprise Holdings, Inc. (Enterprise), finding that the plaintiff Mamadou Bah plausibly alleged Enterprise was his joint employer. Bah v. Enter. Rent-A-Car Co. of Bos., LLC, 2020 WL 6701324 (D. Mass. Nov. 13, 2020). Plaintiff was an assistant manager employed by Enterprise-Boston, an independent regional subsidiary of Enterprise, and alleged that Enterprise-Boston and Enterprise violated the Fair Labor Standards Act and the Massachusetts Overtime ...

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A federal court in Pennsylvania dismissed all claims against a franchisor because the plaintiff failed to plausibly allege that the franchisor and its franchisee were joint employers. Doe v. McDonald’s USA, LLC, 2020 WL 7133517 (E.D. Pa. Dec. 3, 2020). Sixteen-year-old Jane Doe brought claims for discrimination, hostile work environment, and intentional infliction of emotional distress against McDonald’s and its franchisee, alleging McDonald’s and the franchisee were joint employers and thus jointly liable for the franchisee’s manager’s misconduct ...

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In a blow to the franchisor community, a federal court in New York invalidated the joint employer regulation recently issued by the U.S. Department of Labor (DOL). 

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A federal court in North Carolina granted in part and denied in part a franchisor’s motion for summary judgment because the franchisee’s owner and her employee-spouse could not demonstrate that they were jointly employed by their franchisor. Elsayed v. Family Fare LLC, 2020 WL 4586788 (M.D.N.C. Aug. 10, 2020). We previously reported on the court’s denial of the franchisor’s motion to dismiss in Issue 251 of The Franchise Memorandum. Family Fare entered into a franchise agreement for a gas station convenience store with Almy, LLC, a company owned by plaintiff Lola Salamah ...

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In another case analyzing the amount of control exerted by 7-Eleven over its franchisees, a federal court in Illinois dismissed a franchisee’s putative class action seeking relief under Illinois’ Wage Payment and Collection Act (IWPCA). Patel v. 7-Eleven, Inc., 2020 WL 3303003 (N.D. Ill. June 18, 2020). In his complaint, plaintiff Niral Patel contended that 7-Eleven’s franchise agreements, including the franchise agreement between 7-Eleven and Shanti 11, Inc. (a corporation wholly owned by Patel), constituted agreements to pay wages governed by the IWPCA. Under the ...

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In another case involving the classifications of franchisees, a federal court in California granted a franchisor’s summary judgment motion in part, holding that the franchisees were not entitled to unpaid overtime wages, but allowed claims to proceed based on alleged misclassification of franchisees as independent contractors. Haitayan, v. 7-Eleven, Inc., Case No. CV 17-7454 DSF (C.D. Cal. Feb. 19, 2020). The plaintiffs are 7-Eleven franchisees who claimed that 7-Eleven should have classified them as employees rather than independent contractors. The franchisees ...

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A federal court in California has granted a motion for reconsideration in light of recent Ninth Circuit precedent, reversing the district court’s prior decision and dismissing ostensible agency claims alleged against a franchisor. Cruz v. MM869, Inc., 2020 WL 509109 (E.D. Cal. Jan. 31, 2020). Cruz, an employee of the Merry Maids franchisee and representative of a class action group, alleged that the franchisor Merry Maids and its parent organization ServiceMaster were joint employers and were liable for the franchisee’s alleged violation of various wage and hour laws under ...

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A federal court in Pennsylvania granted summary judgment to a franchisor on a wage and hour putative collective action brought by an employee of its franchisee. DiFlavis v. Choice Hotels Int’l, Inc., 2020 WL 610778 (E.D. Pa. Feb. 6, 2020). Plaintiff Gina DiFlavis worked as a housekeeper for several weeks at a franchisee’s Clarion Hotel. The Clarion brand is franchised by Choice Hotels. DiFlavis alleged that she and other housekeepers at Clarion Hotels nationwide were denied compensation for overtime work performed. Choice moved for summary judgment on the basis that it was not ...

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On February 26, 2020, the National Labor Relations Board issued its final rule defining the standard for a “joint employer” under the National Labor Relations Act. Under the final rule, a business must exert “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The rule further provides that the “essential terms and conditions” of employment consist solely of the following ...

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Elsewhere, a federal court in North Carolina granted in part and denied in part a motion for partial judgment on the pleadings in a case in which the franchisee’s principals asserted that they were employees of the franchisor. Elsayed v. Family Fare LLC, 2020 WL 780701 (M.D.N.C. Feb. 18, 2020). Family Fare entered into a franchise agreement for a gas station convenience store with Almy, LLC, a company owned by plaintiff Elsayed. Family Fare subsequently terminated the agreement based upon allegations that Almy had skimmed proceeds from lottery ticket sales. Elsayed then sued ...

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In another joint employer claim against a franchisor, a federal court in California has dismissed without prejudice a discrimination complaint filed by a franchisee’s former employee proceeding pro se against the franchisee, its owners, and the franchisor. Stewart v. Chick-fil-A, 2020 WL 264578 (S.D. Cal. Jan. 17, 2020). Plaintiff Lindsey Stewart is a 62 year-old woman who worked at a Chick-fil-A franchise in California owned by Defendants 3 Little Cows, Inc., Danny Putnam, and Becky Putnam. Stewart’s complaint alleged one count of “corporate failure to supervise their ...

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A federal court in New Jersey partially denied franchisor Jackson Hewitt Tax Service’s motion to dismiss, allowing claims to proceed that allege Jackson Hewitt was an employer of certain of its franchisees’ employees. Mardis v. Jackson Hewitt Tax Service, Inc., 2019 WL 7207551 (D.N.J. Dec. 26, 2019). In so holding, the court disagreed with Jackson Hewitt’s arguments that Oklahoma statute § 59-6005(B) and (C) — which expressly states that “[a] franchisor shall not be considered the employer of a franchisee or a franchisee’s employees” — should be applied ...

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A federal court in Connecticut concluded that material disputes of fact precluded deciding whether a franchisor had misclassified its franchisees as independent contractors, but nevertheless dismissed the plaintiffs claim for unjust enrichment based on a Connecticut anti-kickback statute. Mujo v. Jani-King Int’l, Inc., 2019 WL 7037794 (D. Conn. Dec. 12, 2019). Mujo, on behalf of a class of over 100 Jani-King franchisees, alleged that Jani-King was unjustly enriched in violation of a Connecticut statute that prohibits employers from demanding any sum of money from any ...

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A federal court in New York granted 7-Eleven’s motion to dismiss a franchisee’s employee’s complaint, which alleged that 7-Eleven was his joint employer, for lack of sufficient factual allegations to support the claim. Acharya v. 7-Eleven, Inc., 2019 WL 6830203 (S.D.N.Y. Dec. 13, 2019). Acharya’s complaint alleged that he was unpaid for, among other things, over 2,000 hours of overtime work and that, as a result, 7-Eleven and the franchisee, as his joint employers, had violated the Fair Labor Standards Act (FLSA) and the New York Labor Law.

In granting 7-Eleven’s motion ...

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The National Labor Relations Board (NLRB) has vacated a decision by an administrative law judge (ALJ) denying the settlement agreements that had been proposed to resolve complaints against McDonald’s USA LLC, McDonald’s Restaurants of Illinois, Inc., and 29 McDonald’s franchisees alleging various unfair labor practices violations. McDonald’s USA LLC, 368 NLRB No. 134 (2019). The NLRB’s decision upheld the parties’ settlement agreements even though they do not impose joint employer liability on the franchisor as had been sought in the complaints.

The highly ...

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A federal court in New York has granted a distributor’s motion for summary judgment after concluding that the plaintiffs were independent contractors and therefore not entitled to the protections and rights of federal and state labor laws. Franze v. Bimbo Food Bakeries Distrib., LLC, 2019 WL 2866168 (S.D.N.Y. July 2, 2019). Nicholas Franze and George Schrufer signed distribution agreements with Bimbo Food Bakeries to deliver baked goods along designated routes. Franze and Schrufer both filed suit against Bimbo on the premise that Bimbo was their employer and had violated ...

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The U.S. Court of Appeals for the Ninth Circuit announced an onerous standard that could potentially make all franchisors liable to California franchisees for wage-and-hour claims in Vazquez v. Jan-Pro Franchising Int'l, Inc., 923 F.3d 575 (9th Cir. 2019). The case arose over a decade ago when unit franchisees claimed that Jan-Pro was their employer and had failed to comply with state wage-and-hour laws. Originally filed as a putative class action in Massachusetts federal court, the claims by California unit-franchisees were severed and transferred to California, while the ...

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The U.S. Department of Labor has proposed a rule to revise and clarify when two entities will be considered joint employers for purposes of wage and hour liability under the Fair Labor Standards Act. The proposal contains specific limitations on joint employer status in the franchising context, and is intended to “ensure employers and joint employers clearly understand their responsibilities” under the FLSA. It is important to note that this proposal is distinct from, and different than, the proposed joint employer rule currently under consideration by the National Labor ...

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The U.S. Court of Appeals for the Ninth Circuit vacated a judgment on the pleadings that had dismissed a claim by 7-Eleven franchisees that they had been misclassified as independent contractors rather than employees for purposes of federal and state labor laws. Haitayan v. 7- Eleven, Inc., 2019 WL 968927 (9th Cir. Feb. 27, 2019). In the same opinion, the Ninth Circuit vacated and remanded the lower court’s denial in a related case of the franchisees’ request for a preliminary injunction preventing 7-Eleven from refusing to renew their franchise agreements unless they released ...

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The United States District Court for the District of New Jersey recently held that Zevin Curtis Ward, an employee of a franchised automotive repair business, sufficiently alleged that franchisor Cottman Transmission Systems acted as his joint employer. Ward v. Cottman Transmission, 2019 WL 643605 (D.N.J. Feb. 14, 2019). Ward brought claims of workplace discrimination, retaliation, and creation of a hostile work environment under Title VII of the Civil Rights Act of 1964 and the New Jersey Law Against Discrimination, together with allegations of unpaid overtime under the Fair ...

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A federal court in California granted a franchisor’s motion for summary judgment on all but one claim brought by a franchisee’s employees, holding that there was a fact question on the reasonableness of the employees’ belief that the franchisee was operating as an agent of the franchisor. Cruz v. MM 879, Inc., 2019 WL 266458 (E.D. Cal. Jan. 18, 2019). The plaintiffs are a class, which the court certified in a separate order on the same day, of approximately 181 current and former employees of MM 879, a California-based Merry Maids franchisee. They alleged that several of MM 879’s ...

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Meanwhile, the federal court in Connecticut has granted a motion for class certification, allowing the lead plaintiffs to pursue employee misclassification claims on behalf of all Connecticut franchisees of the Jani-King system. Mujo v. Jani-King Int’l, Inc., 2019 WL 145524 (D. Conn. Jan. 9, 2019). The plaintiffs alleged that franchisees had been misclassified as independent contractors under their franchise agreements with Jani-King and were actually employees of the franchisor, citing operational standards and their dependence on Jani-King for work assignments. They ...

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The National Labor Relations Board has overruled its 2014 decision in FedEx Home Delivery, 361 NLRB No. 610 (2014), finding that FedEx improperly limited the significance of a worker’s “entrepreneurial opportunity for gain or loss” when evaluating whether a party is an independent contractor or an employee. SuperShuttle DFW, Inc., 367 NLRB No. 75 (Jan. 25, 2019). In SuperShuttle, the NLRB considered whether SuperShuttle franchisees, who operate shared-ride vans to and from the airport, were employees for purposes of the National Labor Relations Act, or whether the ...

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A federal court in Ohio recently approved a class action settlement of a wage and hour lawsuit brought on behalf of a class of pizza delivery drivers against a Domino’s franchisee and various Domino’s corporate entities, including the franchisor of the Domino’s system. Mullins v. S. Ohio Pizza, Inc., 2019 WL 275711 (S.D. Ohio Jan. 18, 2019). The plaintiff, a pizza delivery driver for Southern Ohio Pizza, a 19-unit Domino’s franchisee, alleged that the franchisee and Domino’s were his joint employers, and that as such they under-reimbursed him and similarly situated ...

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In three consolidated actions, the U.S. District Court for the Southern District of New York  granted summary judgment in favor of franchisor Domino’s Pizza, Inc. and certain related entities (the “Domino’s defendants”), holding that they were not joint employers of current and former employees of several Domino’s Pizza franchisees and therefore could not be held liable for alleged wage violations under the Fair Labor Standards Act and the New York Labor Law. In re Domino’s Pizza, Inc., 2018 WL 475944 (S.D.N.Y. Sept. 30, 2018). To make this determination, the court ...

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The long‐awaited decision of the D.C. Circuit Court of Appeals in an appeal challenging the controversial joint employer test adopted by the National Labor Relations Board in Browning‐Ferris Industries, 362 NLRB No. 186 (2015), was released on December 28, 2018. Browning‐Ferris Indus. of Cal., Inc. v. NLRB, 2018 WL 6816542 (D.C. Cir. Dec. 28, 2018). Although the D.C. Circuit’s decision was expected to either clarify or reject the NLRB’s August 2015 decision holding that a company could be a joint employer if it had an unexercised right to directly or indirectly control an ...

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The United States Court of Appeals for the Tenth Circuit recently revived a Department of Labor lawsuit alleging that the franchisor Jani-King failed to maintain proper employee records regarding its franchisees as required under the Fair Labor Standards Act. Acosta v. Jani-King of Okla., Inc., 905 F.3d 1156 (10th Cir. 2018). The DOL alleged that the franchise owners—some of whom were individuals and others of which were corporate entities owned by one or two individuals—were actually employees of the franchisor, misclassified as independent contractors, under the Tenth ...

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An administrative law judge has denied motions to approve proposed “informal” settlements in the National Labor Relations Board joint employer litigation against the franchisor of the McDonald’s system. McDonald’s USA, LLC & Fast Food Workers Comm., N.L.R.B. Case Nos. 02‐ CA‐093893 (July 17, 2018). The litigation arose out of alleged retaliation against franchisees’ employees who participated in Fight for $15 demonstrations demanding higher pay for fast food workers. The litigation was commenced under the Obama Administration for the stated purpose of ...

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Wendy’s could be liable as a joint employer under Title VII, a federal court recently held, allowing the plaintiff to proceed with her hostile work environment claims against Wendy’s and one of its franchisees. A.H. v. Wendy’s Co., 2018 WL 4002856 (M.D. Pa. Aug. 22, 2018). The plaintiff, a former employee of the franchisee, filed suit alleging that she was sexually harassed by a supervisor and that Wendy’s was jointly liable for the hostile work environment under either a joint employer or agency theory. Wendy’s moved to dismiss, arguing that the plaintiff failed to plead ...

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A series of unusual developments has brought the NLRB’s joint-employer standard back in front of the D.C. Circuit, where the federal court will finally weigh in on the 2015 decision in Browning-Ferris Industries, 362 NLRB No. 186 (2015). For many years prior to 2015, when determining when two or more entities would be considered a “jointemployer” under the National Labor Relations Act, the NLRB looked at whether an entity possessed and exercised direct control over employees’ terms and conditions of employment. In Browning-Ferris, however, the board announced that even ...

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A federal district court in California has denied in part a plaintiff’s unusual motion for summary judgment on whether a franchisor and its franchisees were joint employers of the franchisees’ delivery drivers. Campanelli v. ImageFIRST Healthcare Laundry Specialists, Inc., 2018 WL 934545 (N.D. Cal. Feb. 16, 2018). ImageFIRST businesses provide industrial laundry service for companies in the healthcare industry. Campanelli brought a putative class action on behalf of ImageFIRST delivery drivers against the franchisor, 17 ImageFIRST franchisees, and another 10 ...

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On February 26, 2018, the National Labor Relations Board issued an order that vacates its December 14, 2017, joint employer decision in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. As we reported in Issue 225 of The GPMemorandum, Hy-Brand had expressly overruled the expansive joint-employer standard set forth in the Obama-era Browning-Ferris Industries, 362 N.L.R.B. No. 186 (2015). In its recent order, the NLRB accepted its ethics official’s determination that NLRB Member William Emanuel is, and should have been, disqualified from participating in the ...

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A federal court in Georgia recently held that a franchisor and its licensee were not joint employers of a subfranchisee’s former employee. In Boon v. Clark Foods, Inc., 2017 WL 6622554 (M.D. Ga. Dec. 28, 2017), a server at an IHOP restaurant operated by Clark Foods sued IHOP (the franchisor), an IHOP master licensee named Sunshine Partners, and Clark Foods (an IHOP subfranchisee), claiming she was discriminated against on the basis of her age in violation of the Age Discrimination in Employment Act. IHOP and Sunshine Partners filed for summary judgment on the basis that they were not ...

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As we brought to your attention last month in a special Franchise Law Alert, the National Labor Relations Board decided in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (Dec. 14, 2017), to overrule expressly the controversial joint employer standard espoused two years ago in Browning-Ferris Industries, 362 NLRB No. 186 (2015). Under the ruling in Browning-Ferris, two entities could be found to be joint employers based on the mere right to control the terms and conditions of employment, regardless of whether that right was actually exercised. The Hy-Brand Board held that ...

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In another joint-employer case, a federal court in Pennsylvania denied a franchisor’s motion to dismiss claims for sexual harassment, gender discrimination, and retaliation brought against it on a joint employer theory by a technician who worked at a franchised automotive repair facility. Harris v. Midas, 2017 WL 5177668 (W.D. Pa. Nov. 8, 2017). The court identified three factors necessary for a finding of joint employment: (1) the alleged employer’s authority to hire and fire employees, promulgate work rules, and set other conditions of employment; (2) the alleged ...

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The Oregon Court of Appeals recently affirmed rulings by the Oregon Employment Department and an administrative law judge that National Maintenance Contractors (“NMC”), a maintenance services franchisor, owed $138,029.69 in unemployment insurance taxes because its franchisees were not independent contractors but its employees. Nat’l Maintenance Contractors, LLC v. Employment Dep’t, 2017 WL 4675106 (Or. Ct. App. Oct. 18, 2017). NMC had argued that it was exempt from unemployment insurance taxes because, as its franchise agreements stated, its franchisees were ...

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The United States Court of Appeals for the First Circuit recently refused to allow a franchisee to pursue a claim that he was an employee of franchisor Jan-Pro on the grounds that the franchisee had already lost a similar case in a Georgia state court. Depianti v. Jan-Pro Franchising Int'l, Inc., 2017 WL 4324323 (1st Cir. Sept. 29, 2017). Depianti, a unit franchisee of a thirdparty who was a Jan-Pro master franchisee, brought suit in the federal court in Massachusetts, where his franchise was located, arguing that he was an employee of Jan-Pro. At the same time, Jan-Pro filed a case in ...

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Another decision out of the United States District Court for the District of Maryland partially granted, and partially denied, a motion to dismiss filed by franchisor Ledo Pizza Systems in an action involving one of Ledo’s franchisees and the franchisee’s employees. Lora v. Ledo Pizza Sys., Inc., 2017 WL 3189406 (D. Md. July 27, 2017). Among the issues in dispute were claims filed by the employees of the franchised business against both Ledo and the franchisee pursuant to the Fair Labor Standards Act (“FLSA”) and the Age Discrimination in Employment Act of 1967 (“ADEA” ...

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Meanwhile, a federal court in Pennsylvania dismissed an auto repair services franchisor from a sexual harassment and discrimination case brought by a franchisee’s former employee. In Harris v. Midas, 2017 WL 3440693 (W.D. Pa. Aug. 10, 2017), the plaintiff employee of a Midas Auto Service franchisee was allegedly repeatedly sexually, physically, and emotionally harassed, assaulted, and tortured by some of the franchisee’s other employees. In addition to suing the franchisee, the employee sued Midas, alleging joint employer, agency, and vicarious liability.

In moving to ...

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A federal court in California recently granted the franchisor of the Jan-Pro franchise system summary judgment on wage-and-hour claims asserted by unit franchisees of its regional master franchisees, concluding that Jan-Pro did not employ the unit franchisees. Roman v. Jan-Pro Franchising Int'l, Inc., 2017 WL 2265447 (N.D. Cal. May 24, 2017). In assessing the unit franchisees’ joint employer claims, the court applied the test articulated by the Supreme Court of California in Martinez v. Combs, 231 P.3d 259 (Cal. 2010), which consists of three alternative bases to find an ...

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A federal district court in Alabama has granted a franchisor’s motion to dismiss for failure to state a claim, holding that the plaintiff failed to show that the franchisor was the plaintiff’s employer under the Fair Labor Standards Act (“FLSA”). Rodriguez v. America’s Favorite Chicken Co., 2017 WL 1684543 (N.D. Ala. May 3, 2017). Rodriguez was employed as a counter customer service employee at a Church’s Chicken franchise location in Alabama. She alleged three claims against the franchisor and the franchisee: (1) failure to pay overtime pay under the FLSA; (2) failure ...

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The Second Circuit Court of Appeals recently affirmed a decision that franchised black-car drivers using a franchisor dispatching service were independent contractors, not employees, of the franchisor. In Saleem v. Corporate Transportation Group, 2017 WL 1337227 (2d Cir. Apr. 12, 2017), the plaintiffs-appellants were black-car drivers in the tri-state area who owned black-car franchises. The defendants-appellees were a group of related transportation companies known as Corporate Transportation Group (“CTG”) that owned “base licenses” that allowed them to ...

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A Wisconsin federal court recently granted a motion for summary judgment filed by franchisor Fish Window Cleaning Services, Inc., finding that it was neither an employer of its franchisee’s employees under the Fair Labor Standards Act (“FLSA”) nor under Wisconsin state wage and hour laws. Pope v. Espeseth, Inc., 2017 WL 108081 (W.D. Wis. Jan. 11, 2017).

The court held that the test for joint-employer liability was substantially similar under both the FLSA and Wisconsin state law and looked to the following four factors: (1) whether Fish had the power to hire and fire the ...

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In December, an Oregon federal court found that a franchisor was not a joint employer of its franchisee’s employees and granted portions of the franchisor’s motion for summary judgment. Gessele v. Jack in the Box, Inc., 2016 WL 7223324 (D. Or. Dec. 13, 2016). The plaintiffs had brought a putative class action alleging violations of the minimum wage and overtime provisions of the Fair Labor Standards Act (“FLSA”) and various state wage-and-hour laws. The plaintiffs had been employed in several of the company-owned restaurants run by franchisor Jack in the Box at the time the ...

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The Appellate Division of the New York Supreme Court recently affirmed rulings by New York’s Unemployment Appeal Board that the Jan-Pro Cleaning Systems franchisor was the employer of some of its franchisees for unemployment tax purposes. The case, In re Baez, 2016 WL 6270685 (N.Y. App. Div. Oct. 27, 2016), is an important reminder of the continued need for franchisors to carefully structure their relationships with franchisees to minimize employee misclassification risks.

Following an unemployment insurance tax audit of Jan-Pro, the New York Department of Labor determined ...

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A district court in the Southern District of New York recently denied a franchisor’s motion to dismiss federal and state law employment claims brought against it by employees of one of its franchisees. Ocampo v. 455 Hospitality LLC, 2016 WL 4926204 (Sept. 15, 2016). Several employees of a Doubletree hotel franchise sued the franchisee and the franchisor of the Doubletree system alleging violations of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law. Doubletree moved to dismiss the claims against it on the grounds that the employees had failed to allege facts from ...

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A Virginia federal court has concluded that a lawn care franchisor was not a joint employer of a franchisee's employee. Wright v. Mountain View Lawn Care, LLC, 2016 WL 1060341 (W.D. Va. Mar. 11, 2016). The employee had sued Mountain View Lawn Care (the franchisee) and U.S. Lawns (the franchisor) for gender discrimination, harassment, and retaliation in violation of Title VII of the Civil Rights Act. She argued that U.S. Lawns was a joint employer because she wore a U.S. Lawns uniform, drove a truck with a U.S. Lawns logo, and received correspondence from her employer on U.S. Lawns ...

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The long anticipated Browning-Ferris decision was released on August 27, 2015. Browning Ferris Indus. of Cal., Inc., 362 N.L.R.B. No. 186. As expected, a three-member majority decided it was necessary to abandon the relatively "bright-line" definition of "joint-employer" to address the "current economic landscape" of the labor market. Citing to a 1982 Third Circuit opinion dealing with another Browning-Ferris affiliate, the Board majority said it needed to "revisit and to revise the Board's joint-employer standard . . . to put the Board's joint-employer standard on a clearer ...

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The trend of troublesome "joint employer" lawsuits against franchisors continues. In Benitez v. Demco, 2015 US Dist. Lexis 20325 (S.D.N.Y. Feb. 19, 2015), for example, a federal court in New York declined to consider a franchisor's motion to dismiss federal and New York state-law claims asserted by franchisees' employees, on the grounds that imposing joint-employer liability is a fact specific question that cannot be resolved on a motion to dismiss. Two managers of Planet Wings franchises claimed the franchisor was liable as their employer for various wage and hour violations. To ...

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A state appellate court has reinstated a decision of the Board of Industrial Insurance Appeals that Jan-Pro cleaning franchisees without employees or subordinates were considered covered workers under the Washington Industrial Insurance Act. Dept. of Labor and Indus. v. Lyons Enters., Inc., 2015 WL 459409 (Wash. Ct. App. Feb. 3, 2015). The Act requires employers to report and pay workers compensation premiums for covered workers. Lyons Enterprises, the master franchisee of Jan-Pro cleaning franchises, argued that franchisees should not be considered workers under the Act ...

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McDonald's Corporation is in the legal news again, but this time with a victory. In the midst of all the fanfare about McDonald's "joint employer" battle with the National Labor Relations Board, McDonald's successfully defeated motions for conditional certification of two companion wage and hour collective actions. Pullen v. McDonald's Corp. & Wilson v. McDonald's Corp., 2014 U.S. Dist. LEXIS 128364 (E.D. Mich. Sept. 15, 2014). In the cases, two groups of plaintiffs alleged minimum wage violations under the federal Fair Labor Standards Act (FLSA) on behalf of more than 1,000 ...

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Last month, a federal court in New Jersey held that a group of 7-Eleven franchisees alleged sufficient facts in their amended complaint to withstand a motion to dismiss their claim that they were employees of 7-Eleven under the Fair Labor Standards Act (FLSA). NAIK v. 7-Eleven, Inc., 2014 U.S. Dist. LEXIS 107139 (D.N.J. Aug. 5, 2014). In denying 7-Eleven's motion, the court held that the facts, as alleged by the franchisees, weighed in favor of finding an employment relationship when considering the six-factor test articulated by the Third Circuit and the economic reality of the ...

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The trend of troublesome wage and hour lawsuits against franchisors continues. In recent months, several new cases have commenced that should serve as an ongoing reminder that when it comes to employment, franchisors should take care not to control or become entangled in their franchisees' day-to-day activities. In the recent cases, various franchisors were sued by their franchisees' employees for alleged violations of the Fair Labor Standards Act (FLSA), on the theory that the franchisor was a "single enterprise" or "joint employer" with the franchisee. Orozco v. Plackis, 2014 ...

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The battle continues in the case of Awuah v. Coverall North America. As regular readers of The GPMemorandum will recall, Awuah is a class action matter involving janitorial services franchisees. The lawsuit asserts that the class of franchisees should be considered to be employees, instead of as franchisees and independent contractors, for purposes of applying minimum wage and overtime laws. As first reported in Issue 130 of The GPMemorandum (May 2010), the franchisee class survived summary judgment on its claims, sounding alarm bells throughout the franchising community. As ...

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Posted in Employment

In Doctors’ Associates, Inc. v. Uninsured Employee’s Fund, 2011 Ky. LEXIS 166 (Ken. Nov. 23, 2011), the Kentucky Supreme Court held that Subway franchisor DAI was not responsible for paying workers’ compensation claims on behalf of a franchisee who failed to maintain workers’ compensation insurance. The injured worker was employed by a Subway franchisee at the time of injury, and the state Uninsured Employers’ Fund paid benefits to the worker. The Fund then brought a claim against DAI seeking repayment of the benefits. At issue was a Kentucky statute that imposes ...

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Posted in Employment

In Howell v. Papa John’s Int’l., 2011 U.S. Dist. LEXIS 90972 (N.D. Ohio Aug. 16, 2011), the plaintiff alleged that his employment with a Papa John’s franchisee was terminated improperly in violation of the Americans with Disabilities Act. The plaintiff sued Papa John’s, claiming it was responsible for its franchisee’s employment decision. Papa John’s moved for summary judgment on the grounds that it had never employed the plaintiff and was not responsible for its franchisee’s conduct. The court agreed, finding that the plaintiff had failed to present any evidence ...

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Posted in Employment

Last year, we reported on a ruling that shocked the franchise community when a Massachusetts district judge compared a franchise to a modified Ponzi scheme and held, in a putative class action case, that a commercial janitorial services franchisor had misclassified its franchisees as independent contractors when they were employees. Awuah v. Coverall North America, Inc., 707 F. Supp. 2d 80 (D. Mass. 2010). We subsequently reported on a later damages ruling in which the district court appeared to favor Coverall’s arguments, but ultimately certified various damages questions to ...

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Posted in Employment

A Georgia appellate court recently ruled that there was no employer-employee relationship between a Massachusetts unit franchisee and a commercial cleaning franchisor—reversing the trial court’s grant of summary judgment to the unit franchisee. In Jan-Pro Franchising Int’l, Inc. v. Depianti, 2011 Ga. App. LEXIS 543 (Ga. Ct. App. June 23, 2011), the franchisor, Jan-Pro, brought a declaratory judgment action seeking to clarify the employment status of a Massachusetts franchisee. The trial court granted the franchisee’s motion for summary judgment, determining that ...

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Posted in Employment

In Awuah v. Coverall North America, Inc., 2011 U.S. Dist. LEXIS 63381 (D. Mass. June 15, 2011), a case followed closely by the franchise industry, two franchisees who prevailed on their claims in arbitration that they had been misclassified as independent contractors under Massachusetts law were awarded reasonable attorneys’ fees and costs. Following the conclusion of the arbitration hearing, the two franchisees sought an award of all attorneys’ fees and costs from the court related to summary judgment in the underlying litigation on the misclassification issue, their ...

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Posted in Employment

A federal district court in Mississippi recently issued a reminder that franchisors should not establish or control their franchisees’ employment policies, practices, or decisions and should not participate in hiring or managing their franchisees’ employees. In  Reese v. Coastal Restoration and Cleaning Services, Inc. d/b/a SERVPRO of Pearl River/Hancock & SW Harrison Counties et al., 2010 U.S. Dist. LEXIS 132858 (S.D. Miss. Dec. 15, 2010), the plaintiff was hired and employed by Coastal Restoration and Cleaning Services, Inc. (Coastal), a SERVPRO franchisee. Reese ...

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Posted in Employment

Earlier this year, The GPMemorandum reported on a ruling that sent shock waves through the franchise community when a Massachusetts federal district court judge compared a franchise to a modified Ponzi scheme and ruled in a putative class action case that Coverall, a janitorial services franchisor, had misclassified its franchisees as independent contractors when they were actually employees. Awuah v. Coverall North America, 2010 U.S. Dist. LEXIS (D. Mass. March 23, 2010). Following its earlier adverse ruling, the Massachusetts court has provided Coverall with some victories ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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