In a welcome decision for franchisors, and first of its kind in the Second Circuit, the Southern District of New York ruled that Domino's Pizza Franchising LLC, the franchisor (Domino's), did not exert enough control over its franchisee to warrant joint employer status. This determination means Domino's will not have to face claims brought under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL) by current and former employees of a Domino's franchisee.

Plaintiffs filed three putative class actions against various, affiliated Domino's franchisee entities that operate over 30 Domino's Pizza locations and additionally sought to hold Domino's liable as a joint-employer under the FLSA and the NYLL. In three consolidated actions, the Court concluded that Domino's did not possess sufficient formal or functional control over the franchisee's employees to qualify as "an employer" under the FLSA or NYLL.

Specifically, the Court found that Domino's lacked formal control because:

  •  The franchisor did not have the power to hire and fire employees. It was undisputed that Domino's did not receive applications, interview potential employees or otherwise directly hire employees. Evidence that Domino's policies may have affected hiring decisions by, among other things, requiring criminal background checks, was insufficient to establish the power to hire. Similarly, while Domino's may have influenced disciplinary decisions, there was no evidence that it ever carried out a disciplinary action or had the power to fire the franchisee's employees.
  • The franchisor did not supervise or control employee work schedules or conditions of employment. The fact that Domino's set hours of operation and staffing requirements did not equate to supervision or control of work schedules, because Domino's did not assign employees to specific shifts. The Court also rejected Plaintiffs' argument that inspecting franchisee locations and handling customer complaints evidenced control over working conditions.
  • The franchisor did not determine the rate or method of payment for employees. There was no evidence that Domino's set the Plaintiffs' wage rates or issued payments.
  • The franchisor did not maintain employment records. Domino's ability to access and audit employment records did not equate to maintaining those records. While Domino's collected and stored certain employee complaints, those limited records were insufficient to establish that Domino's maintained employment records.

The Court similarly determined that Domino's lacked sufficient functional control over the franchisee's employees' work environment to be deemed a joint-employer. The Court evaluated functional control by considering the following: (1) were the alleged employers' premises and equipment used for Plaintiffs' work; (2) did Plaintiffs have a business that could or did shift as a unit from one putative joint employer to another; (3) did Plaintiffs perform a discrete job that was integral to the alleged employers' process of production; (4) could responsibility under the contracts pass from one subcontractor to another without material changes; (5) to what degree did the alleged employers supervise Plaintiffs' work; and (6) did Plaintiffs' work exclusively or predominantly for the alleged employers? The Court found, among other things, that Domino's did not own the franchisee's premises or equipment used for Plaintiffs' work. Further, Domino's standards for attire, conduct, and product quality, and its enforcement of those standards through audits and inspections, did not constitute control over the franchisee's employees. Rather, the Court deemed these functions to be quality control and brand management.

Takeaways

In re Domino's demonstrates that franchisors can influence certain business decisions bearing on the terms and conditions of employment for franchisee employees without necessarily being deemed a joint-employer under the FLSA or the NYLL. Nonetheless, franchisors must proactively ensure that franchisee's ultimately control hiring, firing, wage payment, and other employment conditions, as well as the functional work environment, to minimize potential liability as a joint-employer for wage and hour violations.

Stay tuned as the DOL and the NLRB are expected to issue new joint-employer rules that will impact this analysis. In the meantime, contact your Baker McKenzie lawyer for more information on managing joint-employer risk.


 

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