Doctors Associates Inc, owner and franchisor of Subway, recently entered into a voluntary agreement with the US Department of Labor. That’s nice. Or is it? That, of course, depends on what the agreement says and who is looking at it. The agreement purportedly is part of Subway’s “broader efforts to make its franchised restaurants and overall business operations socially responsible,” and part of Subway’s effort to “promote and achieve compliance with labor standards to protect and enhance the welfare” of Subway’s own workforce and that of its franchisees.” Yes, I added the italics, because it’s that portion of the explanation that has some employers concerned that Subway may have admitted that it’s a joint employer — even though the agreement itself doesn’t say it is. So, what’s up? Is Subway a joint employer? Did Subway just make things harder for other franchisors, and easier for the National Labor Relations Board as well as the DOL to expand the definition of joint employment? What if any impact will this agreement have on other franchisors and other employers? Let’s talk amongst ourselves and discuss — after the jump, of course!
(image from all-free-download.com)
So what does the Agreement say? Well, it says it’s intended to reduce the number of wage and hour claims at Subway’s company-owned stores and franchisees across the country. On the surface Subway appears to be taking a proactive stance and trying to get ahead of the wage and hour issue, which traps many a well-intentioned, unwary employer. That would normally sound like a good idea. In the Agreement, Subway committed to working with the DOL (so far so good)–and its franchisees– to put together and circulate materials on wage and hour compliance. The Agreement also commits Subway to “explore ways to use technology to support franchisee compliance, such as building alerts into a payroll and scheduling platform that SUBWAY offers as a service to its franchisees”. It talks about Subway being more “socially responsible”. This kind of sounds good, too.
Now what doesn’t the Agreement say? It says absolutely nothing about whether the DOL considers Subway to be a joint employer with its franchisees. If the DOL meant for Subway to be considered a joint employer with its franchisees, it could have said so. Since it didn’t, that must mean that the DOL doesn’t consider Subway the franchisor to be a joint employer with Subway franchisees, right? Ah, if only it were that simple… This is where the expression, “If it walks like a duck, swims like a duck and quacks, like a duck, we call it a duck”, becomes rather instructive. So is it quacking yet? Let’s look a bit further.
There is more the Agreement doesn’t actually say, but that it implies– heavily. For example, if Subway in working with the DOL has also committing to working with its franchisees, then doesn’t that at least imply that Subway has the necessary authority to commit its franchisees as Subway sees fit? Wouldn’t that in turn imply that Subway has the right and the ability to control, either directly or indirectly, its franchisee employees’ working conditions — even if it does not actually exercise that control? If so, that would be enough under NLRB standards to make Subway-the-Franchisor a joint employer with any Subway franchisees. The final section of the Agreement, entitled “Emphasizing Consequences for FLSA noncompliance” would seem to provide ample support for such a position. It explicitly states that it requires its franchisees comply with the FLSA and all applicable laws — as part of its franchise agreement. Aren’t the franchisees would be required to comply with all applicable laws whether or not the franchise agreement said anything at all about compliance? Yes but, of course, there is more. (You knew I’d be leading up to something, right?) The Agreement specifically says, “SUBWAY may exercise its business judgment to terminate an existing franchise, deny a franchisee the opportunity to purchase additional franchises, or otherwise discipline a franchisee based on a franchisee’s history of FLSA violations.” If that’s not evidence of right/ability to control working conditions of a franchisee’s employees — albeit indirect control–then what is?
Now, arguably, this Agreement is only about wage and hour issues. The problem is that Subway would have a hard time arguing that it doesn’t have the right to control work conditions, or that it does, but only for wage and hour issues. That is why it lends itself to broader application, and has broad implications.
Does this Agreement now mean that all franchisors are joint employers with their franchisees? No. It does, however make it easier for the unwary franchisor to be caught in the DOL and the NLRB’s crosshairs. At the same time, though, the specific facts will determine. In this case, it would appear that Subway has sufficient right and ability to control its franchisees’ employees’ working conditions. If your company– is a franchisor, it might be able to structure its relationship with its franchisees in such a way that you do not have such rights. Franchisors will not only need to be careful how they write their franchise agreements. You will need to look at how much direction and support your company provides its franchisees, how much your company will require its franchisees to do things its way, among other things. That, of course, leads me to what is usually the final point of almost any post here: Consult with your friendly employment counsel (and, maybe, in this case one who also understands franchises) before you go further.
That concludes this week’s segment. Thanks for joining us and come back next week for a new installment!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
Are you a N.J. employer/business owner? Join the new LinkedIn group, New Jersey Business Litigation Forum, run by my friend and colleague, Gene Killian. Click here for more info.
Click here to register for my live webinar on Understanding Pay Equity, Discrimination and Reporting Requirements on Sept 14 1pm EST.