Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ga.: Franchisor, affiliate could be covered joint enterprise within Fair Labor Standards Act, (Mar 20, 2014)

By John W. Arden, J.D., LL.M.

Food delivery drivers—claiming that their compensation structure violated the Fair Labor Standards Act (FLSA)—adequately alleged that franchisor GoWaiter Franchise Holdings LLC and affiliate GoWaiter Business constituted a joint enterprise within the coverage of the FLSA, according to the federal district court in Atlanta (Wilson v. GoWaiter Franchise Holdings, LLC, March 18, 2014, Carnes, J.). Thus, the drivers were entitled to amend their complaint to add FLSA claims against the affiliate.

GoWaiter Business Holdings, Inc. is the franchisor of a business that facilitates the delivery of food from local restaurants to customers, through the use of a common website. When a GoWaiter franchise receives an order, it relays the information to one of its drivers by text message. The driver then collects the food from the chosen restaurant and delivers it to the customer, who pays a small delivery fee for the service.

GoWaiter Franchise Holdings (GFH) is a distinct affiliate, whose purpose is limited to taking over the management and operations of franchises in a territory until that territory can be sold or transferred to a new owner. When a GoWaiter franchisee desires to sell its business, GFH purchases the franchise and assumes operation of the territory until a new franchisee can take over.

It was in this capacity that GFH owned and operated one franchise in Gwinnett County, Georgia from October 1, 2012 through March 11, 2013 and one franchise in Alpharetta, Georgia from January 1, 2013 through March 22, 2013. Plaintiff Randall Wilson worked at a driver for both locations from August 2012 to January 2013. Plaintiff Chris Messer worked as a driver at the Alpharetta location from April 2012 through February 2013.

GoWaiter drivers are paid a set fee for each delivery and are permitted to keep any tips they receive. Because the per-delivery fee paid to drivers is less than the federally-mandated minimum wage and a driver is typically able to make only one delivery per hour, the drivers claimed that the compensation structure violated the FLSA.

Wilson filed suit against GFH and Michael Handy on behalf of himself and all similarly situated individuals to recover unpaid minimum wages, liquidated damages, fees, and costs. He amended the complaint to add Chris Messer as a named plaintiff. Soon after filing their motion for class certification, GFH and Handy filed a motion to dismiss for lack of subject matter jurisdiction on the ground that GFH does not generate the $500,000 in income to be governed by the FLSA. Plaintiffs responded by asserting a joint enterprise theory of coverage, which would bring GFH within the coverage of the FLSA. They moved to amend their complaint to allege such a joint enterprise. GFH and Handy opposed the amendment, arguing that it was futile, since the plaintiffs could not establish that a joint enterprise existed between GFH and non-party GoWaiter.

Coverage of Franchise Operations

While franchise operations do not generally meet the requirements for inclusion, the FLSA does not categorically exclude franchise relationships from joint enterprise coverage. U.S. Department of Labor regulations make it clear that “an ordinary franchise arrangement does not create an enterprise” but that some franchise arrangements have the effect of creating a larger enterprise and whether they do or not depends on the facts, the court found.

Joint Enterprise

To proceed on the theory that GFH and GoWaiter Business form a joint enterprise, the plaintiffs had to show the existence of three elements: (1) related activities, (2) unified operation or common control, and (3) a common business purpose.

Related activities. Activities are related when they are the same or similar or when they are auxiliary and service activities involving operational interdependence. This can include warehousing, bookkeeping, or other activities performed for the common purpose of the enterprise. The drivers alleged that GFH operated GoWaiter franchises to maintain continuity of service during a lapse of ownership, preserving the goodwill built up in the area and facilitating sale of the franchise to a new franchisee. Thus, GFH shared with GoWaiter Business the ultimate business purpose of selling franchises.

These allegations and further claims that the companies share the same principal place of business and operated with some of the same personnel were sufficient to support the claim that GFH and GoWaiter Business performed related activities.

Unified operation or common control. In evaluating whether two organizations constitute a unified operation or are commonly controlled, the determinative question is whether a common entity has the power to control the related business operations. The drivers noted that GFH and GoWaiter Business shared the same founder, owner, president, and two of three managing members. They further claimed that Handy and non-party Tony Ceppaluni controlled both entities. GFH made much of the ability of the lower-level managers to direct the day-to-day operation of GFH’s GoWaiter franchises. This was not dispositive when the power to exercise control exists in the ownership, the court observed.

Common business purpose. Department of Labor regulations indicate that a common business purpose is not a narrow concept, intended to be limited to a single business establishment or a single type of business. Rather, the term encompasses activities that are directed to the same business objective or to similar objectives. In this case, the drivers claimed that GFH would not have a purpose without the existence of GoWaiter Business and that the two entities share goals of (1) expanding and supporting the GoWaiter franchise model; (2) ensuring continuous delivery services in the community when a franchisee ceases providing such services; and (3) implementing efficient delivery service operations and profitable businesses practices while building a national brand. GFH argued that its ultimate goal was the delivery of food, whereas the ultimate goal of GoWaiter Business was to sell franchises.

The court found that the drivers adequately alleged that GFH and GoWaiter Business formed a joint enterprise for coverage under the FLSA. Thus, they were entitled to amend their complaint to include such an allegation.

Certification of Class

The FSLA explicitly permits plaintiffs to proceed on behalf of all similarly situated employees, the court found. Class actions arising under Federal Rule 23 presume class member participation and demand that individuals opt-out if they do not wish to be bound by an action’s outcome. However, collective actions under the FLSA require potential class members to opt-in to the class if they desire representation. The drivers sought the conditional certification of a class comprised of drivers who were classified and independent contractors at establishments owned and operated by GFH since April 1, 2010.

The court granted in part the certification, subject to limitations. The drivers were denied inclusion of drivers from GHF’s Tallahassee location during the relevant time period, since they failed to allege or show those drivers were similarly situated.

The case is No. 1:13-cv-01054-JEC.

Attorneys: Jason Coleman (Mays & Kerr, LLC) for Randall Wilson. Brett T. Lane (Greenberg Traurig, LLP) for GoWaiter Franchise Holdings LLC.

Companies: GoWaiter Franchise Holdings LLC

Cases: FranchisingDistribution GeorgiaNews