A Michigan federal district court denied a franchisor’s motion to dismiss claims under Title VII of the Civil Rights Act of 1964 and Michigan law, and claims alleging retaliatory termination and sexually hostile work environment at franchised locations. The claims alleged the franchisor was liable as a joint employer.

Dy N Fly, a franchisor of hair coloring salons, was sued by employees of two franchisees. The employees alleged that Dy N Fly held significant integrated control over the franchise owner’s operations and actions. These actions included the franchise owner sending sexually provocative text messages, frequently making inappropriate comments, unwanted touching, and explicit advances. The employees complained to Dy N Fly’s co-founder, who looked to evade responsibility by saying the franchisor had nothing to do with the franchise owner’s behavior.

Dy N Fly filed a motion to dismiss the joint-employer claims. In denying the motion, the court determined that Dy N Fly’s owner and co-founder’s alleged knowledge and involvement created a plausible inference that Dy N Fly shared or codetermined essential terms and conditions of employment. The alleged facts included Dy N Fly’s co-founder introducing one plaintiff to the franchisee for a management position; asking a plaintiff to reconsider terminating her employment with the franchisee; a text message the co-founder composed for plaintiff to send to the franchise owner pleading to “let her do her job”; his promises to address the employee’s complaints with Dy N Fly’s President; and offering a small severance for an agreement not to sue Dy N Fly.

The district court rejected Dy N Fly’s reliance on a disclaimer of the franchisor’s responsibility for personnel decisions in the franchise agreement, finding the disclaimer not to be dispositive at the pleadings stage. Further, Dy N Fly’s brand standard manual to franchisees had a human resources section, with headings in the table of contents suggesting detailed policies governing the terms and conditions of employment, including interview and training processes, discipline and termination, sexual harassment policy, as well as minute details of daily routines.

Small franchisors like Dy N Fly are prone to joint employer claims for not observing contractual formalities and separateness inherent in the franchisor-franchisee relationship. Franchisors whose principals have close personal relationships with a franchisee and/or employees of the franchised business should consult franchise counsel before relying on personal relationships with the parties or resorting to self-help to protect itself from joint employer claims.

Acuff v. Dy N Fly, LLC, 22-cv-12329 (E.D. Mich. May 5, 2023)