The Franchise Memorandum

A federal court in Michigan recently denied a franchisor’s motion to dismiss claims alleging that it was liable as a joint employer for claims under Title VII of the Elliott-Larsen Civil Rights Act, Michigan’s state counterpart to Title VII. Acuff v. Dy N Fly, LLC, 2023 WL 3293278 (E.D. Mich. May 5, 2023). The four plaintiffs were employees of JWH and JWH2, franchisees of Dy N Fly, a franchisor of hair salons. Plaintiffs alleged that the owner of the franchises frequently brought up sexually provocative topics, would make sexual comments on other coworkers’ dress, touched them on their lower back on several occasions, and made explicit advances towards multiple employees during a company outing. Dy N Fly filed a motion to dismiss the joint-employer claims against it.

The court applied the economic reality test to determine whether plaintiffs plausibly alleged that Dy N Fly was the plaintiffs’ joint employer, considering the factors of (1) control; (2) payment of wages; (3) hiring and firing; and (4) responsibility for discipline. The court found that the involvement of Dy N Fly’s owner and co-founder, including an introduction of one plaintiff to the franchisee, a text message he composed for plaintiff to send to the franchisee, and his promise to address the issue with Dy N Fly’s President, created a plausible inference that Dy N Fly shared or codetermined those matters governing essential terms and conditions of employment. The court further noted that Dy N Fly’s reliance on the franchise agreement’s apparent disclaimer of any responsibility over personnel decisions was not a decisive factor at the pleadings stage. The court highlighted the human resources section in Dy N Fly’s brand manual table of contents, and determined the titled sections indicated detailed policies governing terms and conditions of employment, which supported the conclusion that Dy N Fly exercised control over the terms and conditions of plaintiffs’ employment. As a result, the court denied Dy N Fly’s motion to dismiss.

*Asad Imam is a Summer Associate for Lathrop GPM who contributed to the writing of this post.