Overcoming Confusion for Franchisors

Franchisors are finding that they have to toe an increasingly fine line between setting quality control standards across national franchises and opening the door wide to wage and hour, discrimination, retaliation, or any of a litany of employment-related lawsuits brought by employees of their individual franchisees. Franchisors should heed the message of recent court decisions and take a close look at the level of control over franchise employees indicated by their global policies—because such control can lead to liability under an agency or joint employer theory. This article explores the Southern District of New York’s recent case involving Domino’s Pizza, which permitted the franchisor to be joined as a defendant in a Fair Labor Standards Act (FLSA) lawsuit, analyzes cases in which district court judges in other jurisdictions granted summary judgment in favor of franchisors in the FLSA context, and finally suggests best practices for franchisors seeking to avoid employment liability.

‘Domino’s Pizza’

In Cano v. DPNY,¹ delivery employees filed a lawsuit against their Domino’s Pizza franchisee-employers for unpaid wages and overtime. Thereafter, the plaintiffs successfully joined Domino’s Pizza (Domino’s) as a defendant under the joint employer theory.² In support of their argument that Domino’s should be held jointly liable for any damages resulting from their claims, the plaintiffs contended that Domino’s had sufficient control over training and setting of management policies to qualify as a joint employer of the franchisees’ employees. Plaintiffs further argued that Domino’s use of a computerized timekeeping system gave the franchisor access to sufficient information about its franchisee’s employees to allow it to determine whether its franchisee’s employees were being paid in accordance with applicable wage/hour laws. Finally, plaintiffs argued that Domino’s ability to terminate a franchise if the franchisee was violating any law or company policy equated to control over the franchisee’s payroll compliance such that Domino’s had functional and operational control over the franchisee-employees. Although Magistrate Judge James Francis ultimately found these arguments persuasive, he acknowledged that the allegations remained to be proven. Nonetheless, the court granted the joinder motion despite the lack of allegations that Domino’s specifically had control over hiring, firing, or payroll decisions—allegations that are regularly required to establish joint employment. When the original defendant, DPNY, filed for bankruptcy, the case settled as a part of the franchise’s reorganization plan. Domino’s made some fee concessions to the franchisee, which made settlement possible.³Cano serves to caution franchisors that establishing a franchisor’s day-to-day control is not necessary to find it and the franchisee are joint employers.

Franchisors Are Generally Not Employers