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The Franchise Memorandum

New Jersey Federal Court Denies Franchisor Summary Judgment on Employment Claims
Posted in Employment

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). The plaintiff in the case, Zevin Ward, worked at a franchised Cottman Transmission center in New Jersey. Ward claimed that the franchise owner racially harassed him and forced him to work over fifty hours per week without paying him overtime. After Ward filed an EEOC complaint and was discharged, he sued the franchisee, its principal, and the franchisor, Cottman Transmission, alleging claims under federal and state civil rights laws and the federal Fair Labor Standards Act. Following discovery, the franchisor moved for summary judgment, arguing that it had no liability to Ward because it was not his employer.

The court denied the motion, principally because disputed issues of fact precluded a determination as to whether the franchisor qualified as Ward’s employer under governing law. The record demonstrated that the franchisor had not been involved in hiring or firing Ward, did not pay him, and was not even aware of his employment. However, the court pointed to various franchise agreement provisions showing possible theoretical franchisor control over franchisee employees, such as those mandating hours of operation or suggesting how employees might better perform certain tasks. Thus, the court held, genuine issues of material fact precluded summary judgment as to respondeat superior liability. If the franchisor were liable for the franchisee’s conduct on that basis, it would not matter if the franchisor itself had engaged in racial harassment or other alleged misconduct. In the court’s opinion, the same facts regarding potential control also precluded summary judgment in favor of the franchisor on the FLSA claim; the evidence potentially was sufficient to show that the franchisor was Ward’s employer for purposes of that statute.

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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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