Courts Issue Opposing Rulings On Franchisors as Employers

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A federal appeals court and a federal district court reached different conclusions in recent cases involving franchises and employers.

A pizza restaurant franchisor was not an employer liable for overtime and minimum wage violations under the Fair Labor Standards Act against a cook at a franchisee's location, a federal appeals court ruled (Orozco v. Plackis,2014 BL 186406, 5th Cir., No. 13-50632, 7/3/14).

The appeals court, in reversing a district court ruling, said the franchisor lacked the authority to hire and fire the cook and set his schedule and pay rate under the economic reality test. The test is used to evaluate whether an entity has the power to hire and fire workers, supervise and control worker schedules or conditions, determine the pay rate and maintain employment records.

The other factors of the test also were not met because the district court erroneously inferred that the franchisor's knowledge of the cook's wages could be viewed as advising the franchisee, and the cook said that he did not have evidence that the franchisor maintained employment records, the court said.

In a similar case, a franchisor was considered a joint employer liable for wage violations, a federal district court ruled (Olvera v. Bareburger Grp. LLC,2014 BL 193457, S.D.N.Y., No. 1:14-cv-01372, 7/10/14).

The court, which focused on the relationship of the economic reality test to the FLSA and New York labor laws, said a former cook and other workers showed that the restaurant and franchisor affiliates had enough control to establish employer liability.

The franchisor guided the franchisees in employee training, required the use of particular payroll practices and timekeeping systems and monitored employee performance, the court said. The actions satisfy the economic realities test for establishing employer status, the court said.

The franchisor companies and individuals set requirements for franchise operations, specified employee procedures for preparing customer orders, determined wages, maintained employee records and retained the authority to hire and fire, the court said.