In a recent decision, the U.S. Court of Appeals for the Fifth Circuit provided franchisors with some ammunition in employment suits raised by a franchisee’s employees. In a Fair Labor Standards Act claim raised by a franchisee’s employee in Texas, the Fifth Circuit reversed a jury verdict finding that the franchisor was liable for the franchisee’s FLSA violations.
The greatest benefit for employers comes from the Court’s analysis of the FLSA’s employment relationship standard. The Court stated that no one factor dispositively proves an employment relationship, and that the dominant proof point is who has operative control in the employment situation. In fact, the Court stated that “employer” should be defined “more broadly than the term would be interpreted in traditional common law applications.” Even under this broad framework, the Fifth Circuit held that Plackis, the franchisor, was not the individual’s employer because the evidence presented in the case demonstrated that all Plackis did was provide advice on profitability and management to his franchisee.
This case provides franchisors with some breathing room regarding their business. So long as their involvement with the franchisees is limited to providing advice, the franchisors can remain insulated from franchise-related employment claims — at least in the states covered by the 5th Circuit (Texas, Louisiana, Mississippi).