Contributed by Christina Stoneburner

Plaintiffs have recently been stretching the limits of who is their employer for purposes of protection under state and federal employment laws.  We recently reported about a case against 7-Eleven where the Court refused to dismiss a complaint filed by the franchisee’s employees against the franchisor where the employees argued that the franchisor was, for purposes of the federal Fair Labor Standards Act (“FLSA”), their employer.

Copyright: iqoncept / 123RF Stock Photo
Copyright: iqoncept / 123RF Stock Photo

Determining who is an employer under the FLSA can be tricky and may depend on which circuit the case is brought.  A recent Fifth Circuit case may give some hope to franchisors.  In Orozco v. Plackis [PDF], No. 13-50632 (5th Cir. 2014), the Fifth Circuit Court of Appeals reversed a jury verdict and award for damages for violations of the FLSA entered against the franchisor and in favor of the franchisee’s former employer.

The Court used the “economic realities” test to determine if the franchisor could be a joint with the franchisee.  In holding that the franchisor was not an employer for FLSA purposes, the Court noted that the franchisor did not have the power to hire or fire the franchisee’s employees nor did the franchisor have control over the terms and conditions of the worker’s employment.

The interesting part of the decision for franchisors is that there was some evidence that the franchisor did provide advice to the franchisee which seemed to include a meeting where the franchisor advised how to reduce payroll through better scheduling. Immediately after this meeting, the franchisee changed the plaintiff’s schedule which is what led to the complaint.

The Court noted that it would expect franchisors to provide some advice to a struggling franchisee but providing this advice did not mean that the franchisor had control over the terms and conditions of the franchisee’s employees.   The key to this decision is that the evidence demonstrated that the advice provided by the franchisor was just that, advice, meaning it could either be taken or ignored by the franchisee.

However, franchisors should remain cautious when venturing into areas such as their franchisees’ workers schedules and salaries to be paid. Even friendly advice given often enough might be perceived by courts or jurors as mandatory rather than optional.