Fifth Circuit Court of Appeals reverses jury verdict holding franchisor is a “joint employer”

In an interesting counterpoint to the recent actions by the National Labor Relations Board with respect to the status of McDonald’s Corporation as a “joint employer” of its franchisees’ employees (see our recent article on this), the federal Fifth Circuit Court of Appeals in New Orleans (the “Court”) has recently come to the opposite conclusion.

The Court examined the issues of whether a franchisor is a “joint employer” of its franchisees’ employees in reviewing and overturning a jury verdict. In Benjamin Orozco v. Craig Plackis, a former employee of a Craig O’s pizza franchisee asserted claims under the Federal Labor Standards Act ( the “FLSA”) against the Craig O’s pizza franchisor. Following a jury trial, the jury found that the franchisor was a “joint employer” of the employee with the franchisee.

Rejecting the jury’s conclusion, the Court analyzed the case under the “economic reality test,” focusing on the power to hire and fire employees, supervision and control of employees’ work duties, the rate and method of payment of employees, and the custody of employment records. Analyzing all these factors, the Court found that the control over the employee, his pay, his activities, and his responsibilities rested with the franchisee. As such, the franchisor was not a joint employer. Of particular interest, the Court noted that the ultimate power over the employee rested with the franchisee even though the franchisor had some input into the employee’s conduct through the franchise systems’ operational manual and standards.

As the issue of “joint employee” status takes on new importance in the aftermath of the NLRB actions, courts may continue to differ over whether a joint employment relationship is created in a franchise system based upon specific factual situations.