Court agrees that franchisors are not responsible for franchisees' employees

Court agrees that franchisors are not responsible for franchisees' employees

by | Mar 29, 2019 | Blog, For Franchisees, For Franchisors

Franchisors are likely giving a standing ovation to a recent court ruling in support of their contention that they are not joint employers with their franchisees.

A federal district court for the Northern District of Illinois, Eastern Division, has dismissed claims against franchisor Jimmy John’s, finding instead that the defendants, employees of Jimmy John’s franchisees, were not also employees of the franchisor.

Is there a difference between “brand standards” and “employment standards?”

Yes, according to the court’s decision in In Re: Jimmy John’s Overtime Litigation.  The plaintiffs in that case were all former employees of Jimmy John’s restaurants owned by separate franchisees. The court noted that there are more than 700 individual Jimmy John’s franchise owners operating nearly 2,200 franchise stores in 43 states and the District of Columbia.

As with most franchise agreements, the Jimmy John’s franchise agreements indicate that while the franchisees must adhere to the Jimmy John’s Brand Standards, they otherwise own and operate “independent businesses.”
The court recognized that:

  • The Fair Labor Standards Act defines an “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee…” 29 U.S.C. § 203(g); and
  • Many courts have agreed that the term “employer” should be applied broadly so as to fulfill Congress’ remedial intent.

Nonetheless, after conducting a comprehensive analysis of the Jimmy John’s franchise agreement and operations manual, the court determined that “Jimmy John’s established that it does not:

  1. have the power to hire or fire franchise employees;
  2. supervise and/or control employee work schedules or conditions of payments;
  3. determine the rate and method of payment; or
  4. maintain employment records for franchise employees.” 

And importantly for franchisors, the court noted that “any control that Jimmy John’s does exert over the franchisees relates to Brand Standards, which Jimmy John’s is entitled to enforce and protect through compliance measures against the franchisees.”
 

How much control over franchises is too much?

That is a fine line that must be drawn with care. Make sure that your documents do not permit you to exert too much control over the employment decisions of your franchisees’ employees. Unclear how to do that? Then make sure you speak with knowledgeable franchise and employment counsel. If you have questions about your franchise documents, feel free to contact me, Julie Lusthaus at jl@lusthauslawpc.com  and let’s talk.
 

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