United States: Illinois District Court Rejects Bid To Hold Jimmy John's Liable For Franchisees' Employees

Fast food enterprises are frequent targets for claimed wage and hour violations. Because in many instances the places where the plaintiff worked is actually a franchise, the scope of a claim or proposed class may be limited to a few locations, rather than the entire chain. It is therefore not uncommon to see efforts made to hold the large brand-name franchisor liable for what might happen in an individual franchisee's store. In 2016, the Subway chain addressed that issue by adopting the novel approach of providing training to its thousands of franchisees, to help them comply with the FLSA. We blogged about that program here.

Like Subway, the competing Jimmy John's sandwich chain has grown explosively through franchising. It has over 2,500 stores, over 95 percent of which are franchises. There are at least 700 franchisees, ranging in size from a single store to one owning over 50. Its marketing to potential franchises touts the earning potential of owning a store, but also emphasizes the need for hard work, long hours and adherence to brand standards.

So it was only a matter of time before someone tried to claim that the franchise was liable as the employer (or more accurately the joint employer) of workers at its franchises. In In Re: Jimmy John's Overtime Litigation, Case Nos. 14 C 5509, 15 C 1681 and 15 C 6010 (N.D. Ill. June 14, 2018), the plaintiffs were assistant store managers at various Jimmy John's franchises. They contended that they were misclassified as exempt under the FLSA and sought to hold the chain, as well as the individual franchisees, liable. The plaintiffs, for their part, cited factors such as company documents that required franchisees to commit to "following Jimmy Systems 100% of the time" and to execute "100% of the requirements" of reports by company officials known as "business coaches." They relied upon a company operations manual that included a daily "punch list" and provided in detail the procedures to run a store, from sandwich preparation to cleaning to financial administration. They also pointed to requirements regarding uniforms, staffing levels and the presence of certified managers, and anecdotal evidence about audits relating to sandwich preparation and appearance. The defendant, in turn, cited to portions of the franchise agreement, giving the franchisees total control of their workforce, and the need to enforce brand standards.

The court granted conditional certification, a decision that obviously benefited the plaintiffs, but then the defendants moved for summary judgment. In a 59-page decision, the court reviewed the evidence extensively and, for purposes of this blog, made two significant rulings.

First, in opposing the summary judgment motion, the plaintiffs retained an expert to testify that the control exercised by Jimmy John's was sufficient to render it an employer or joint employer. That expert, however, worked in the field of human resource management and employment relations, not franchises, and the defendants moved to strike the expert's opinion under Daubert standards. While the court noted concerns about the expert's lack of experience with franchises, it focused on incomplete information provided by the plaintiffs to the expert, such as deposition digests rather than the transcripts themselves, and multiple inaccuracies. These inaccuracies were, perhaps, what most troubled the court, as the expert tended to skew or exaggerate testimony in favor of the plaintiffs. The expert, for example, would characterize as "punishment" direction from business coaches, or would equate instructing an employee on how to make a sandwich as "discipline." It thus struck the report.

Second, the court found that the franchise was not the joint employer of the franchisees' employees. The court's opinion on this point is roughly 30 pages long, but the crux was the distinction between upholding brand standards and controlling employment. Much of the plaintiffs' evidence related to the company upholding its image, the makeup of the food being sold, cleanliness and similar matters. Ultimately, however, it was the individual franchisees who hired the assistant store managers. The individual franchisees decided whether they would be exempt or not. Although the operations manual provided interview guides and similar materials, that did not mean that it "controlled" the hiring process, as the franchisees made the hiring decisions at the end of that process. Likewise, although the franchise allegedly influenced termination decisions, in part through enforcement of brand standards, that did not equate to control over those decisions. The court rejected the notions that general staffing requirements reflected control over schedules and that the company's right to audit franchisees' employment records was the same as maintaining the records itself. The plaintiffs made similar arguments as to the "business coaches," arguing that they controlled how the stores operated through their audits, training and recommendations, but the court found that all of these related to the company's legitimate goal of producing a uniform, quality customer experience throughout the chain. Ultimately, it concluded that matters such as quality control and brand standards did not amount to control over employment.

The Jimmy John's decision is important because it is a thorough examination of the joint employer argument as applied to franchising arrangements. The case is notable for the commonsense line it drew between a restaurant's need to enforce its brand standards and how an individual franchisee might run its business within those standards.

The bottom line:

There is a difference between a franchise enforcing its brand standards and joint employment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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