In Gessele v. Jack in the Box, Inc., the franchise world got a win in the joint employer battle when the United States District Court for Oregon ("Court") held that Jack in the Box, Inc. ("JIB") was not the joint employer of certain employees of its franchisees as a matter of law using the economic reality test in granting summary judgment in JIB's favor.
Here, several employees brought a putative class action lawsuit against JIB for violation of the minimum-wage and overtime provisions of the Fair Labor Standards Act ("FLSA") and various other Oregon wage-and-hour laws as a joint employer. After a long litigation history that involved dismissing the first suit and the employees re-filing this suit, JIB moved for summary judgment arguing that it did not violate the FLSA or any other law with respect to the employees because it was not a joint employer.
In analyzing whether JIB was a joint employer of the employees, the Court utilized the "economic reality" test which outlines on four main factors including whether the alleged employer: (i) had the power to hire and fire employees; (ii) supervised and controlled employee work schedules; (iii) determined the rate and method of payment; and (iv) maintained employment records.
Pursuant to the factors listed above, JIB argued that it did not have any power to hire and fire employees, control employee work schedules, determine employee pay rate or maintain employment records citing relevant portions of the franchise agreement which state that franchisees are solely responsible for hiring and firing decisions, employee decisions and the day-to-day operations of the restaurant. Further, JIB relied on the testimony of JIB's legal department, JIB's franchisees and the employees themselves, which provided that the franchisees determine all conditions of employment for employees of the restaurant, are in charge of all hiring and firing decisions. Further, in actual practice the franchisees and its managers were in charge of all employment matters. The employees argued that while JIB did not have the specific authority to control these employment matters, JIB still fulfilled the economic reality test because JIB imposed very specific requirements for who the franchisees were allowed to hire, made franchisees' employees use the designated time-keeping software and scheduling system, and maintained a collection of franchisees' employee's data through its required software.
In making its decision, the Court was unconvinced by the employees' arguments and noted that the Ninth Circuit had previously found that franchisor/franchisee relationships with similar circumstances failed to surpass the requirements of the economic reality test. The Court utilized these cases as guidance for ruling in favor of JIB's motion for summary judgment noting that the power to terminate a franchise alone is insufficient to create a joint employment relationship.
The Takeaway. It is of utmost importance to ensure that both the franchise agreement and franchise disclosure document contain language to protect the franchisor in the context of a potential case of joint employment. Best practices include making sure the franchise documents provide that all employment matters and day-to-day decisions are the sole responsibility of the franchisee. Additionally, please be aware that any court will examine the conduct of the parties and all circumstances surrounding the relationship in making a joint employment determination. As such, it is important not only to ensure that the franchise documents adequately protect a franchisor but that your actions are not in contravention to the explicit terms of the franchise documents, and that your training of franchisees and employees–especially regional staff–reflect this reality.
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