It is not new in franchising. Customers, employees, suppliers have all attempted to hold the franchisor responsible for acts of the franchisees. A recent case against McDonalds by a class of the employees is no exception. There have been numerous cases where employees of the franchisees have attempted to sue the franchisor. In fact, we have talked about these cases on our blog before. But, what’s new, is the claim that the franchisor is a joint employer.
But, what is a ‘joint employer’? How can employees claim that McDonald’s franchisor is the employer of the franchisees’ employees? And, what happens if McDonalds is found to be a joint employer?
Realize the definition of employer is expansive. It is not just expansive, it is hugely expansive. The Supreme Court of the United States has even made the proclamation that the definition of the employer is “the broadest definition that has ever been included in any one act.” United States v. Rosenwasser 323 U.S. 360, 363 n.3 (1945).
An employer is “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). That is a circular definition. But, what it says is: ‘If you act like an employer you are an employer.”
The regulations provide an understanding of what constitutes a joint employer. It starts by saying that “A single individual may stand in the relation of an employee to two or more employers at the same time under the Fair Labor Standards Act of 1938.” With that opening statement we know that joint employment is possible. Now, what is it? It is defined in the negative. Joint Employment is not when “two or more employers are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee….” 29 C.F.R. § 791.2
Courts have established numerous economic reality tests to determine joint employment. There is the NLRB test, the Lewis Test, the Bonnette Test and in 2012 the Enterprise Test was created. The Enterprise Test was developed in the precedential case of IN RE: ENTERPRISE RENT-A-CAR WAGE & HOUR EMPLOYMENT PRACTICES LITIGATION. It blends together factors from the other tests. It a rather nice list of what is considered in a joint employment case. There are 4 prongs. The more prongs that you answer “I do have” the more likely you are to be considered a joint employer. Here are the 4 prongs:
1) authority to hire and fire the relevant employees;
2) authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment;
3) involvement in day-to-day employee supervision, including employee discipline; and
4) actual control of employee records, such as payroll, insurance, or taxes.
What happens if you are found to be a joint employer? Joint employers are charged with complying with the wage and hour laws. If there is a violation, both joint employers can be liable. The upshot; if McDonald’s franchisor is held to be a joint employer, the McDonald’s franchisor could be liable for double and maybe even triple the wages and overtime pay that its franchisees should have paid to its employees. Plus McDonald’s franchisor will have to pay its own attorney fees and the employees’ attorney fees. That is one biggie sized Big Mac of a legal bill!
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Trademarking and Franchise Law