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Joint Employer Liability: When the Government Chooses Your Spouse for You. Kathryn Rookes Annie Caiola Vice President & GC Partner Lynx Franchising, LLC Caiola & Rose krookes@lynxfranchising.com annie@caiolarose.com. Regulation . Federal DOL NLRB IRS States
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Joint Employer Liability:When the Government Chooses Your Spouse for You Kathryn Rookes Annie Caiola Vice President & GC Partner Lynx Franchising, LLC Caiola & Rose krookes@lynxfranchising.com annie@caiolarose.com
Regulation • Federal • DOL • NLRB • IRS • States • Unemployment Contributions (government) • Workers Compensation Contributions (government) • Wage Law Violations (government and private)
What Test Determines Status? If only there were just one! • “to suffer or permit to work” – Federal DOL and some states • 20 factor test – IRS and some states • Right to control – some states (and previously NLRB) • Indirect right to control – NLRB • ABC test – some states
Conflict With Trademark Law • A franchisor is responsible for maintaining the integrity of the trademark. • If a franchisor fails to enforce system standards for quality, the value of the trademark will be impaired, and in extreme cases, even lost. (aspirin, cellophane, escalator, trampoline, dry ice, kerosene, laundromat, linoleum, yo-yo, zipper) • A franchisor can only fulfill this responsibility by exercising some degree of control over the goods and services offered by each franchisee, and the manner in which each franchisee uses the trademark.
Control • Does the firm provide instructions or procedures the worker is expected to follow in doing the work? • Does the firm provide training to the worker? • Does the continuation of the scope and function of the firm depend appreciably on the services of the worker? • Does the firm require the personal services of the worker to get the job done? • Does the firm hire, supervise and pay for any assistants needed by the worker to do the work?
Control, continued • Does the relationship between the firm and the worker contemplate continuing or recurring work? • Does the firm set the hours of work or the amount of hours to be worked by the individual? • Is the worker required to devote full time to the firm during the relationship? • Is the individual required to perform the work on the firm’s premises? • Is the worker required to perform the services in an order or pattern set by the firm?
Control, continued • Is the worker required to give oral or written reports to the firm on the state of the work? • Is the worker’s pay based on the time worked? • Does the firm pay the worker’s expenses? • Does the firm furnish the tools and materials needed to do the work? • Does the worker have a significant investment in the facilities used in doing the work?
Control, continued • Can the worker realize a profit or suffer a loss as a result of the services performed for the firm? • Does the individual work for a number of firms at the same time? • Does the worker offer this service to the general public? • Does the firm have the right to discharge the worker at any time? • Does the individual have a right to terminate the relationship at any time without incurring liability?
Common Law: Agency: • a representation by the principal to the plaintiff, which, • causes the plaintiff reasonably to believe that the alleged agent is authorized to act for the principal's benefit, and which, • induces the plaintiff's detrimental, justifiable reliance upon the appearance of agency. Franza v. Royal Caribbean Cruises, Ltd., 772 F.3d 1225, 1251–52 (11th Cir. 2014).
Common Law: Vicarious Liability: In Georgia, “[t]wo elements must be present to render a master liable for his servant's actions under respondeat superior: first, the servant must be in furtherance of the master's business; and second, he must be acting within the scope of his master's business.” Dowdell v. Krystal Co., 662 S.E.2d 150, 153 (Ga. Ct. App. 2008) (citing Piedmont Hosp., Inc. v. Palladino, 580 S.E.2d 215, 217 (Ga. 2003)).
NLRB – Joint Employer Standard • Pre 2015: Direct, immediate control and not “limited or routine.” TLI, Inc., 271 NLRB 798 (1984). • Post 2015: Right to control, even if unexercised. Browning-Ferris Indus. of California, Inc.,362 NLRB 1599 (2015). • December 2017: NLRB reversed Browning-Ferris. Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156, 2017 WL 6403496 (2017). • February 2018:NLRB effectively reverses reversal. Browning-Ferris reinstated. Hy-Brand Industrial Contractors, Ltd., 366 NLRB No. 26, 2018 WL 1082557 (2018). • September 2018: NLRB announces proposal to revert back to the pre-Browning-Ferris standard. The Standard for Determining Joint-Employer Status, 83 Fed. Reg. 179, 46681 (Sept. 14. 2018) (to be codified at 29 CFR Ch. 1). • NLRB expected to issue final ruling in coming months.
DOL – Joint Employer Standard • April 1, 2019: The U.S. Department of Labor proposes new 4-factor balancing test derived from Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). • Does the putative joint employer actually exercise the power to: • hire or fire an employee; • supervise and control an employee’s work schedules or conditions of employment; • determine an employee’s rate and method of payment; and • maintain an employee’s employment records.
Case Law • Cruz v. MM 879, Inc., No. 1:15-CV-01563-TLN-EPG, 2019 WL 266458 (E.D. Cal., Jan. 18, 2019). • Analysis focused on: • whether franchisor exercised control over wages; • whether franchisor had actual knowledge of wage violations; and • whether a common law employer relationship had been created. • Summary Judgment granted in Merry Maid’s favor on joint employer; but denied on ostensible agency.
Case Law • In re Domino's Pizza Inc., 16-CV-2492 (AJN) (KNF), 2018 WL 4757944 (S.D.N.Y. Sept. 30, 2018). • Court examined “formal control“ factors: “whether the alleged employer • had the power to hire and fire the employees; • supervised and controlled employee work schedules or conditions of employment; • determined the rate and method of payment; and • maintained employment records.”
Case Law In re Domino's Pizza Inc., cont’d. Even if the absence of formal control factors, court may examine “functional control” factors: • whether the alleged employer’s premises and equipment were used for the plaintiffs' work; • whether the subcontractors had a business that could shift as a unit from one putative joint employer to another; • the extent to which [the] plaintiffs performed a discrete line job that was integral to the alleged employers' process of production; • whether responsibility under the contracts could pass from one subcontractor to another without material changes; • the degree to which the alleged employers or their agents supervised the plaintiffs' work; and • whether the plaintiffs worked exclusively or predominantly for the alleged employers. • Held: Domino’s was neither a joint employer nor apparent agent.
Case Law Bonaventura v Gear Fitness One NY Plaza LLC., 17 Civ. 2168 (ER), 2018 WL 1605078 (S.D.N.Y. Mar. 29, 2018). • S.D.N.Y. employs (same) 4-factor “economic reality” test: whether the alleged employer • had the power to hire and fire the employees; • supervised and controlled employee work schedules or conditions of employment; • determined the rate and method of payment; and • maintained employment records. • Court denied franchisor’s motion for summary judgment on joint employer liability.
Case Law • In re Jimmy John’s Overtime Lit., No. 14 C 5509, 2018 WL 3231273 (N.D. Ill. June 14, 2018). • 4-factor test: • the power to hire and fire employees; • supervision and control of employee work schedules or conditions of payment; • determination of rate and method of payment; and • maintenance of employment records. • Court ultimately held Jimmy John’s elements of control were necessary to protect the brand. No joint employer liability.
Case Law • A.H. ex rel. Hunt v. Wendy's Co., No. 3:18-CV-0485, 2018 WL 4002856 (M.D. Pa., Aug. 22, 2018). • 3-Factor test in 3rd Circuit: • Authority to hire and fire employees, promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours; • day-to-day supervision of employees, including employee discipline; and • control of employee records, including payroll, insurance, taxes, and the like. • Court found sufficient facts pled to prove joint employer and apparent agency.
Case Law – Pivotal Case: Dynamex • Dynamex Operations W. v. Super. Ct., 4 Cal. 5th 903, 416 P.3d 1 (2018), reh'g denied (June 20, 2018). • Court rejects the flexible, multi-factor “right to control” test and instead found that there is a presumption that an individual is an employee when a wage claim is made, unless the putative employer proves: • that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; • that the worker performs work that is outside the usual course of the hiring entity’s business; and • that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Case Law • Dynamex is significant because: • Rejects the flexible, multi-factor “right to control” test in favor of the ABC test. • Court switches the burden of proof. • Embraces elements of the Browning-Ferris standard (unexercised control). • U.S. Supreme Court denied cert.
Case Law – Pivotal Case: Vazquez • Vazquez v. Jan-Pro Franchising Int'l, Inc., No. 17-16096, 2019 WL 1945001 (9th Cir. May 2, 2019). • 3-tiered master franchise system. • Franchisees’ claim they were employees of Jan-Pro, not franchisees nor employees of their direct franchisor. • Northern District of California disagreed, granted Jan-Pro’s motion for summary judgment and dismissed the case. • While that ruling was on appeal by the Plaintiffs, Dynamex was decided.
Case Law • Vasquez v. Jan-Pro, cont’d. Ninth Circuit: • Dynamex should be applied retroactively; remanded to the trial court for further discovery and briefing; • Explicitly held that the franchise concept does not change the applicability of the Dynamex test in wage case (ignoring requirements under trademark law and franchise law); • ABC test is applicable even if the putative employer is not a party to the contract with the putative employee; and • Added new element to the analysis: Whether the franchisor and franchisee are engaged in the same business.
Case Law • Vasquez v. Jan-Pro, cont’d. Ninth Circuit’s additional element: “Same business enterprise” focused on the following factors: • the unit franchisees were necessary to the operation and success of Jan-Pro (they, or their employees, actually performed the cleaning work); • Jan-Pro received benefits (royalties) of the work of the unit franchisees; and • the work that the Jan-Pro unit franchisees performed was in the usual course of the hiring entity’s business. • Ninth Circuit noted that “franchising” is not a business in and of itself, but instead relies on someone eventually performing the work of the franchised business.
What to Do? • Update Your Unit FDD, Franchise Agreement and Manuals • Educate Your Employees AND Your Franchisees • State Advocacy • Other
Questions? Kathryn Rookes Annie Caiola Vice President & GC Partner Lynx Franchising, LLC Caiola & Rose krookes@lynxfranchising.com annie@caiolarose.com
