Michael Starr is a Partner in Holland & Knight's New York office
In In re: Jimmy John's Overtime Litigation, 2018 WL 3231273 (N.D. Ill. June 14, 2018), a federal district court ruled that fast-food franchisor Jimmy John's did not become a joint employer with its franchisees merely by maintaining brand standards. Jimmy John's, the franchiser of a fast-food restaurant, was sued by employees of some of its franchisees. The plaintiffs were assistant store managers (ASMs) who claimed they were misclassified as exempt under the Fair Labor Standards Act (FLSA) and not paid overtime.
Jimmy John's maintained a relationship with its franchisees that was typical for the fast-food industry. Each franchise was owned and operated as an independent business, but was required to uphold brand standards to ensure constant quality for all Jimmy John's restaurants. Compliance with brand standards was monitored by "business coaches" who regularly inspected each restaurant but did not audit compliance with employment-related matters such as whether ASMs were properly classified as exempt or non-exempt under the FLSA. In reaching its decision, the court relied on several factors. For example, the court ruled that Jimmy John's employment of business coaches to provide guidance on hiring and discipline did not amount to "actual control over" franchise employment decisions. The court also ruled that while Jimmy John's "may have influenced staffing decisions" (emphasis added) indirectly through the requirements of its standardized Operations Manual, this did not constitute "direct authority or control."
The fundamental question, as the district court saw it, was "whether Jimmy John's exercised control and authority over franchise employees in a manner that caused the FLSA violation (at least in part)" (emphasis added). That violation, according to the plaintiffs, arose from the alleged misclassification of ASMs as FLSA-exempt. The evidence showed, however, that the franchise owners determined whether to classify employees as exempt or nonexempt and that while Jimmy John's used its brand standards to standardize the customer experience across all franchise stores, it did not attempt to control classification under the FLSA or require all franchise owners to classify their employees uniformly. Significantly, the court reasoned that any control Jimmy John's did exercise over franchisees related to its brand standards, which, the court said, "Jimmy John's is entitled to enforce and protect through compliance measures against the franchisees."
The Jimmy John's decision is a welcome recognition that enforcing brand standards does not, in itself, make the franchisor a joint employer of the employees of its franchisees. Nationwide franchisors, however, must be cautious in assessing the import of the Jimmy John's decision. Other courts take a much more expansive review of the joint-employer concept for FLSA purposes. One federal court of appeals, for example, has ruled that two separate businesses can avoid a joint-employer finding only if they "are 'entirely independent'" and "'completely dissociated' with regard to the essential terms and conditions that govern a worker's employment." Salinas v. Commercial Interiors, Inc., 848 F.3d 125, 137 (4th Cir. 2017). If the "completely disassociated" test is utilized, strict enforcement of brand standards by a franchisor that indirectly influences a worker's essential terms and conditions of employment would conceivably result in its being found the joint employer of its franchisee employees.
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