Franchising & Distribution Law Blog

On April 1, 2019, the U.S. Department of Labor (DOL) offered a simplified test in a Notice of Proposed Rulemaking to determine whether two entities should be considered joint employers under the Fair Labor Standards Act (FLSA). The FLSA provides that two entities can be jointly and severally responsible for an employee’s wages, and thus the potential FLSA violations of either entity, if they function as joint employers. The notice sets out that the employment relationship should be determined based on a balance of four factors, specifically, whether a potential joint employer actually exercises the power to:

Most franchisors will be happy to hear that the NLRB on Dec. 14 nixed the Browning-Ferris expansion of the joint employer doctrine, which has been of concern to the franchise industry for several years. The new case is Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co, 361 NLRB No. 156 (Dec. 14, 2017). Even though the board held that Hy-Brand and Brandt are collectively joint employers for purposes of the National Labor Relations Act, the joint employer standard applied is a significant departure from the Browning-Ferris standard.

While state and national efforts are underway to clarify the issue of joint employment, plaintiffs continue to allege the theory against franchisors in hopes of getting past a motion to dismiss. The lesson in one such recent case was that franchisors that give product discounts to their franchisees’ employees may find their generosity backfires if they are sued for being a joint employer in certain states. A federal district court in Michigan recently found that food service managers working at Marriott franchises had alleged enough facts to survive a motion to dismiss a lawsuit claiming that the franchisor, Marriott International, Inc., exercises control over them and is their joint employer. Among the allegations that the court cited in denying Marriott’s motion to dismiss was that Marriott treated plaintiffs like Marriott employees by giving them discount room rates at Marriott hotels worldwide, which the court said could be viewed as the ability to affect compensation and benefits similar to an employment relationship.

On June 7, 2017, the U.S. Department of Labor (DOL) announced the withdrawal of two Obama-era guidance letters that provided guidance on joint employer and independent contractor classifications. The withdrawal of these two guidance documents marks a step toward more flexibility for employers.