Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Pa.: Friendly’s Ice Cream and franchisees could be joint employers for FLSA purposes, (May 12, 2016)

By Edward L. Puzzo, J.D.

Former servers in Friendly’s Ice Cream restaurants sufficiently pleaded that the franchisor and its franchisees were joint employers for purposes of maintaining claims brought under the Fair Labor Standards Act, the federal district court in Harrisburg, Pennsylvania, has ruled (Reed v. Friendly’s Ice Cream, LLC, May 11, 2016, Rambo, S.).

Friendly’s Ice Cream, LLC (FIC) operates over 300 restaurants in 14 states. Approximately half of the restaurants are owned directly by FIC, and the other half are owned by franchisees. Franchisee TICC, Inc. owned 6 restaurants in Pennsylvania. Plaintiffs Tisha Reed and Natasha Walker were employed as servers at a Pennsylvania Friendly’s restaurant owned directly by FIC, and plaintiff Kaylee Metz was employed as a server at a Pennsylvania Friendly’s restaurant owned by franchisee TICC.

The plaintiffs brought a putative class action against FIC and TICC, alleging that they violated the Fair Labor Standards Act (FLSA) and state labor and wage laws by requiring servers to perform work tasks “off-the-clock,” both during unpaid meal breaks and after clocking out at the end of shifts; not paying servers who worked more than 40 hours per week at overtime rates; and not paying servers the non-tipped minimum wage for the 20 percent of their time spent on tasks, such as cleaning and restocking, that were not part of their tipped serving duties.

As part of these claims, plaintiffs alleged that FIC oversaw the day-to-day operations of all Friendly’s restaurants, created and enforced all policies related to employees’ wages and work tasks, and in fact operated as a joint employer and integrated enterprise with its franchisees due to its level of oversight of and involvement with each restaurant. FIC moved to dismiss, alleging that plaintiffs failed to allege sufficient facts to support a joint employment relationship between FIC and its franchisees.

Joint employment. In order to determine whether a defendant is a joint employer under the FLSA, the court explained, it must apply the multi-factor test of In re Enterprise Rent-A-Car Wage & Hour Emp’t Practices Litig., 683 F.3d 462 (3d Cir. 2012). Those factors include whether the alleged employer had: (1) authority to hire and fire the relevant employees; (2) authority to promulgate work rules and assignments and to set conditions of employment such as compensation, benefits, and work hours; (3) involvement in day-to-day employee supervision, including discipline; and (4) control of employee records, including payroll, insurance, and taxes.

Here, the court continued, the plaintiffs have alleged that FIC was actively engaged in the day-to-day operation of all Friendly’s restaurants, including restaurants it owned as well as those owned by franchisees; that FIC set the policies for all Friendly’s restaurants, including policies relating to hiring, training, hours of work, overtime, timekeeping and compensation; that FIC provided ongoing operations support to franchisees through “an assigned Franchise Business Consultant”; that FIC had the authority to hire and fire employees, and inspect and supervise their work through quality assurance visits; and that FIC used the same payroll system at all restaurants.

The court found that, at least at the pleading stage, plaintiffs had sufficiently alleged facts under the Enterprise criteria to support a joint employment relationship between franchisor FIC and its franchisees. Therefore the court ruled against defendants' motion to dismiss.

The case is Civil Action No. 1:15-cv-00298-SHR.

Attorneys: David J. Cohen (Kolman Ely PC) for Natasha Walker. Gregg H. Salka (Salka Law LLC) and Heather Z. Steele (Fisher & Phillips, LLP) for Friendly's Ice Cream, LLC. Harris J. Chernow (Reger Rizzo & Darnall LLP) for TICC, Inc.

Companies: Friendly's Ice Cream, LLC; TICC, Inc.

Cases: FranchisingDistribution PennsylvaniaNews