The Franchise Memorandum

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 franchisee’s employees, (2) whether Fish supervised and controlled employee work schedules or conditions of payment, (3) whether Fish controlled the rate or method of payment, and (4) whether Fish maintained employment records. The parties conceded that the first and fourth factors were not present. With regard to the second factor, the franchisee argued that Fish controlled its employees through guidelines contained in Fish’s manual, which addressed issues like employees’ work schedules. The record also reflected that Fish required the franchisee to provide Fish’s manual to employees. However, the court found insufficient evidence of control because the franchisee was free to modify the manual and, in fact, did vary its requirements from those stated in the manual in some instances. Addressing the third factor (the franchisor’s control over the rate and method of payment), the court further held that Fish did not require the franchisee to adhere to a commission-based compensation schedule and again pointed to instances in which the franchisee’s payment policies diverged from the franchisor’s recommendations. Concluding that the “minimal” control exerted by Fish was “nothing like” the type of control that would support a finding of joint-employer liability under the applicable statutes, the court granted Fish’s motion for summary judgment.