Sonic Works With Labor Agency to Keep Wage Violations Off Menu

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

By Ben Penn

The Labor Department and Sonic Drive-In are working together to root out wage-and-hour violations at the fast-food company’s franchisees, under a voluntary compliance agreement signed July 27.

The deal, patterned after an agreement the DOL’s Wage and Hour Division brokered with Subway in 2016, allows Sonic Industries Services Inc. to share government-designed training materials with its 3,500 mostly franchised stores on how to avoid minimum wage and overtime violations. In a key provision, the parties agreed that nothing in the accord “should be construed as an admission by Sonic that Sonic is a joint employer of the workers employed by its franchisees.”

When the WHD inked its compliance deal with Subway, the agency stated an intention to bring more national fast-food brands to the table to encourage broad compliance on behalf of low-wage workers. But sources told Bloomberg BNA at that time that fears of joint employment liability under the National Labor Relations Act scared off many other fast-food companies. President Donald Trump’s Labor Secretary Alexander Acosta doesn’t have jurisdiction over the NLRA but has already signaled a willingness to restore a more narrow interpretation of joint employment—at least under the Fair Labor Standards Act—that wouldn’t place fast-food companies on the hook for franchisees’ wage-and-hour violations.

A recent Bloomberg BNA analysis of WHD enforcement data from the Obama administration found that among the 20 largest fast-food brands, the division investigated Sonic most frequently, with nearly 7 percent of the company’s U.S. stores being subjected to at least one audit over the prior eight years. In more than 70 percent of those investigations, the WHD found at least one FLSA violation. The Sonic cases yielded nearly $1.5 million in back wages the company agreed to pay during the Obama administration.

“We encourage other franchisors to follow SONIC’s example and take similar steps to benefit their franchises’ employees and owners by complying with the law,” acting WHD Administrator Patricia Davidson said in a statement. “Abiding by the law makes better business sense than facing the prospect of paying back wages, damages, and penalties for violations of the Fair Labor Standards Act.”

The partnership continues an effort that began in the Obama administration to bolster workers’ wage protections by focusing on fast-food franchises that frequently violated the FLSA and offered hourly pay only slightly above the local minimum wage, according to government data. The new administration is expected to partner more with employers on compliance assistance, taking more of a carrot than a stick approach. However, the WHD still lacks a political leader, meaning the Sonic initiative wasn’t necessarily driven by the new administration.

Regular Meetings on Investigations, Training

As part of the agreement, the Oklahoma City-based franchiser and the WHD will meet once every three months to discuss closed investigations, training opportunities, and regulatory updates.

The parties will also coordinate meetings in which WHD can directly train franchisees, which operate on a smaller profit margins and commonly lack the resources to hire an attorney to prevent wage-and-hour infractions.

The accord isn’t designed purely to aid franchisees; it can also be used to allow the Sonic corporation to gain deeper access to a franchisee’s history of FLSA violations and to terminate its license.

Further, the WHD will retain its right to enforce the law at Sonic stores and won’t take the agreement into account when evaluating investigations.

“SONIC recognizes that its workers and the workers employed by franchisees in the SONIC Drive-In system are one of the greatest assets to the SONIC brand,” Anita Vanderveer, the company’s senior vice president of people, said in a statement provided to Bloomberg BNA. “In that spirit, SONIC recognizes value in collaborating with the Wage and Hour Division to assist franchisees with compliance.”

Joint Employment Holdup

Some management attorneys and Subway competitors expressed doubt last year that such a compliance arrangement could gain traction at other chains. The International Franchise Association said its member companies wanted to lend legal advice to affiliated franchisees but were concerned that this could trigger a finding of joint employment responsibility from the DOL or the National Labor Relations Board.

Obama’s WHD Administrator David Weil described a broad definition of joint employment under the FLSA in an informal guidance memo that was withdrawn last month by Secretary Acosta. The document didn’t change the law and neither does withdrawing it. But the move does suggest a new attitude and could encourage more employers to follow the lead of Subway and Sonic and negotiate a compliance deal.

However, the IFA and industry allies say the landscape is still shadowy, given that businesses could remain subject to private enforcement by plaintiffs’ attorneys. Employer groups want to undo the National Labor Relations Board’s 2015 decision in Browning-Ferris Industries of California Inc, in which the board held that organizations with indirect control over contractors, franchisees, or staffing agency workers may be considered their joint employers under federal labor law. A House bill introduced on the same day as the Sonic deal would reverse the ruling by amending the NLRA and FLSA to provide for a narrow definition of joint employment.

While the joint employer language in the Sonic-WHD pact “is certainly an improvement, it is no safe harbor against a joint employer finding,” Matthew Haller, a senior vice president at the IFA, told Bloomberg BNA via email. “Given uncertainty in the law, as evidenced by various different joint employer tests in the various circuits and other statutes ... relying on ‘the law’ is a moving target until Congress can pass this legislation,” Haller said.

A DOL spokesman told Bloomberg BNA that the Sonic agreement’s joint employment provision only applies to statutes under the WHD’s jurisdiction, and not to the NLRA.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Chris Opfer at copfer@bna.com

For More Information

The agreement is available at http://src.bna.com/q9O.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Labor & Employment on Bloomberg Law