The Franchise Memorandum

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 DiFlavis’s joint employer.

In granting Choice’s motion, the court applied the Third Circuit’s four-part joint-employer test. First, the court found that Choice had no authority, under the franchise agreement or otherwise, to hire and fire a franchisee’s employees. Second, the court found that Choice did not have the authority to promulgate work rules and assignments, or set conditions of employment, such as compensation, benefits, and hours. Third, the court found that Choice did not supervise DiFlavis on a day-to-day basis, in spite of its periodic inspections of the hotel, because the inspections were related to brand standards and not supervising the franchisee’s employees. Fourth, the court found that Choice did not control the records of the franchisee’s employees, even though the franchise agreement permitted it to review the franchisee’s financial records, because Choice’s audit rights were aimed at maintaining the value of its marks and computing royalties and fees due, not the maintenance of employee records. Describing the “total employment situation,” the court noted that the franchise agreement explicitly stated that the franchisee was an independent contractor with sole responsibility for personnel matters.