Court Holds That Franchisor Is Not a Joint Employer of Franchisee Employees

    A federal district court in Illinois ruled that Jimmy John’s Franchise, LLC (“Jimmy John’s”) is not a joint employer of its franchisees’ employees.FN1 

    In 2014, former employees of various Jimmy John’s franchisees brought a collective action against their former franchisee employers and Jimmy John’s, alleging that they were misclassified as exempt under the Fair Labor Standards Act (“FLSA”) and denied overtime pay.  The former employees alleged that Jimmy John’s was a joint employer and thus jointly liable for their damages, citing the extensive guidelines that it imposed in its franchise agreements (via an operations manual) and the company’s use of business coaches who inspect and audit each franchisee.

    In granting Jimmy John’s summary judgment, the Court held that the joint employment test could be summed up by one crucial question: whether Jimmy John’s exercised control and authority over franchise employees in a manner that caused the FLSA violation (at least in part).  The Court found that although Jimmy John’s provides extensive operational guidelines for its franchisees, they were aimed at ensuring that each franchise provided the same customer experience, and the company did not take an active role in hiring or firing, establishing disciplinary procedures, work schedules, or compensation. Further, in many cases, the franchisor’s guidelines were not mandatory or enforced, and although Jimmy John’s business coaches audited the franchises and provided input, they did not have the authority to mandate that franchise owners follow their input.  Thus, the court found that the franchise owners, not Jimmy John’s, determined how to classify and compensate franchise employees, and thus Jimmy John’s did not exercise control over the alleged FLSA violation and was not a joint employer.

Key Takeaways

     This case provides some key indicators of actions franchisors can take to strengthen their defenses against joint employer claims. Franchisors should:

1.      Ensure that the franchise agreement contains language that affirmatively states that the franchisor has no control or authority over the franchisees’ employment-related matters; and

2.      Ensure that their written guidelines and training in the field focus on brand standards rather than employment-related matters such as hiring, firing, promoting and demoting.   

Footnotes:

FN1 – In re Jimmy John’s Overtime Litigation, 1:14-cv-05509 (N.D. Ill., E. Div. 2018).