We all were recently reminded of an important lesson: Franchisees must not forget that training time is usually paid time for non-exempt employees.  Last week, a Subway franchisee with 29 locations in the Tampa Bay, Fla., area was ordered to pay 122 employees $11,000 in minimum back wages and damages after Judge Richard Lazzara of the U.S. District Court for the Middle District of Florida, Tampa Division entered a Consent Judgment and Order against Franchise Equity Group, Inc.

The U.S. Department of Labor (DOL) filed the minimum wage violation suit against the Subway franchisee after an investigation uncovered that it was not paying employees at least the minimum wage to attend "Sandwich Artist Certification" training.   

The Fair Labor Standards Act (FLSA) [PDF] requires that an employer pay any employee in an enterprise engaged in commerce at least the federal minimum wage for every hour worked in addition to one and one-half times their regular rates for hours worked over 40 each week.  The DOL’s Wage and Hour Division has authority to investigate potential violations of the FLSA minimum wage provisions. 

All time spent by an employee performing job-related activities is potentially "work time" and this includes mandatory training and training related to the performance of the employee’s current job.  There are very limited circumstances when training is not counted as work time. Franchisees found violating the FLSA risk lawsuits by the DOL where a judge may award back wages and damages to employees, including liquidated damages. 

This case contains lessons for both franchisors and franchisees.  Government regulators do not look kindly to businesses who–they believe–"exploit" "vulnerable" and "low-wage workers."  Franchisees should regularly review their payroll and attendance policies to reflect compliance with the FLSA.   In addition, franchisors should make clear in their franchise agreements that the franchisee is responsible for the cost of employee training, including compensation to employees.  This will help assure that a franchisor will not become vicariously liable for the acts of a rogue franchisee.