While state and national efforts are underway to clarify the issue of joint employment, plaintiffs continue to allege the theory against franchisors in hopes of getting past a motion to dismiss. The lesson in one such recent case was that franchisors that give product discounts to their franchisees’ employees may find their generosity backfires if they are sued for being a joint employer in certain states. A federal district court in Michigan recently found that food service managers working at Marriott franchises had alleged enough facts to survive a motion to dismiss a lawsuit claiming that the franchisor, Marriott International, Inc., exercises control over them and is their joint employer. Among the allegations that the court cited in denying Marriott’s motion to dismiss was that Marriott treated plaintiffs like Marriott employees by giving them discount room rates at Marriott hotels worldwide, which the court said could be viewed as the ability to affect compensation and benefits similar to an employment relationship.
Plaintiffs filed a putative class action lawsuit on behalf of current and former food and beverage managers who worked more than 40 hours a week at Courtyard by Marriott hotels. They alleged that Marriott, as their joint employer, violated federal wage and hour law by misclassifying the food service managers as executives so that they were exempt from overtime pay protections. In evaluating Marriott’s motion to dismiss, the court pointed to other allegations that are typical of a franchisor-franchisee relationship, such as auditing and compliance oversight. The court also cited Marriott’s right to terminate the franchise agreement, which would necessarily terminate the employees’ employment, thus amounting to control over employees. The court rejected Marriott’s attempt to rely on a case from an Illinois federal court finding that the right to terminate a franchise agreement and to have control over uniformity and brand standards do not support a finding of joint employer status. Therefore, the final outcome of this case likely will be determined at the summary judgment or trial stage.
The takeaway: This court sits within the jurisdiction of the U.S. Court of Appeals for the Sixth Circuit, which includes Michigan, Kentucky, Ohio and Tennessee. The court noted that the issue of joint employment depends on all of the facts and circumstances in a particular case and is largely an issue of control. Given the fact-intensive nature of the analysis, lawsuits alleging joint employer liability are often difficult to win before discovery, so franchisors should be aware of the applicable law in their jurisdiction and avoid exercising control, when possible, over non-employees.
The decision can be found here.