Domino's not a joint employer, says SDNY: top points for franchisees and franchisors

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Employment Alert

FranCast

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The Southern District of New York has granted summary judgment in favor of Domino's Pizza, Inc., and two affiliated entities in three consolidated actions (In re Domino's Pizza Inc.). In the three actions, employees of more than 30 Domino's franchisees sought to represent a class and collective of thousands of franchisee employees with respect to a host of purported wage-and-hour violations. The employees asserted claims against the franchisees as their direct employers, and further sought to hold Domino's liable on a joint employer theory. Domino's is a DLA Piper client.

This decision, announced on October 1, 2018, is notable in that it is the first summary judgment decision from any district court in the Second Circuit to address the issue of whether franchisors and franchisees may be joint employers in the wage-and-hour context.

Prior to discovery, Domino's moved to bifurcate the actions to address the joint employer issue before broader class and merits discovery, which application the court granted. Following this limited discovery, Domino's moved for and was granted summary judgment in full, as the court held that Domino's did not jointly employ the franchisees' employees. The court's decision is detailed and instructive for any potential company facing similar claims.

Formal control

First, the court determined that Domino's did not exert the requisite "formal control" over the franchisee's employees. Specifically, the court found that, even if it did require franchisees to submit all potential hires for background checks with a Domino's-approved vendor, Domino's did not have the power to hire and fire the franchisees' employees. In other words, "corporate guidance in the hiring process is insufficient to demonstrate that [Domino's] ha[d] power to hire a franchisee's employees."

Similarly, the court held that Domino's did not supervise the employees' scheduling or other conditions of employment. Even though Domino's dictated certain requirements for issues like store opening hours and minimum staffing requirements" and other quality control points, that did not constitute control over individual employees (eg, by setting their shift schedules).

Likewise, the fact that the franchisees and not Domino's controlled the rate and method of payment for the employees also made clear that Domino's was not a joint employer of these employees.

Finally, even though Domino's could "access" certain employee records, it was not responsible for maintaining these records; that responsibility was left to the franchisees. Mere access is insufficient to suggest joint employer status.

Functional control

Second, the Court also held that Domino's did not exercise "functional" control over franchisee employees. Initially, the court found that Domino's did not "own" the premises or equipment used by the employees, and the fact that it approved franchisee leases, and required certain equipment, did not equate to control. Likewise, the court found that even though Domino's imposed certain standards on franchisee employees, such as uniform and appearance standards, enforcement and discipline regarding violations ultimately rested with the franchisee. Therefore, this did not amount to "control." Beyond this, the court found that merely because Domino's conducted inspections of franchisees for, inter alia, compliance with brand and quality standards – and even, on occasion, provided corrective training to employees – this did not amount to control over employment, but rather over brand standards. In short, the court found that Domino's did not exercise functional control over its employees, and the standards that it did require of franchisees – such as product quality and appearance – all concerned brand standards, and not terms and conditions of employment.

Takeaways

The joint employer issue has received significant attention in recent years, particularly in light of the NLRB's vacillating joint employer standard, so the facts and holding of In re Domino's Pizza Inc. provide valuable insight with respect to analysis of such claims in the franchisor/franchisee context.

Indeed, companies of all types – but particularly those that enter into franchise, or franchise-like agreements similar to Domino's – should pay close attention to the decision and analyze whether, as currently constructed, their arrangements with franchisees and/or the employees of their franchisees are analogous to those here. Prudent companies and franchisors should be mindful that if they exert excessive control over franchisees' employees, they may risk exposure to claims under federal and state wage-and-hour laws.

Find out more about this ruling by contacting any of the authors.