The Franchise Memorandum

In 2008, a group of over 300 current and former franchisees of SuperShuttle International, Inc., a shared-ride airport taxi shuttle service, commenced an action against the franchisor. The franchisees claimed that they were employees of the franchisor and were improperly denied a minimum wage and overtime compensation under the New York Labor Law and the Fair Labor Standards Act. In Reid v. SuperShuttle Int’l, Inc., 2012 U.S. Dist. LEXIS 113117 (E.D.N.Y. Aug. 10, 2012), the United States District Court for the Eastern District of New York granted the plaintiffs’ motion to approve a settlement of the case. The settlement consisted primarily of a nominal monetary award to class members who are not current SuperShuttle franchisees, creation of a new “Franchise Resale Opportunity Program,” and the inception of certain “procedural safeguards” relating to decisions to suspend or terminate a franchisee.

While acknowledging that the “settlement is modest,” the court stated that it still benefitted the franchisees because they faced significant challenges in establishing liability. In particular, the court noted that plaintiffs could have a hard time proving they were employees rather than independent contractors. Similar claims brought by drivers for other companies had failed, and several SuperShuttle drivers were unable to establish their status as employees in arbitration proceedings. Plaintiffs also faced arguments that they were not entitled to overtime pay under the FLSA or NYLL because of the “Motor Carrier Exception,” and that most of them could not recover for any violation of the minimum wage laws because their gross income exceeded the applicable minimum wage. Based in large part on its conclusion that the franchisees “face[d] a real and substantial risk of obtaining nothing if [the] case were to proceed,” the court approved the proposed settlement.