Update on Orozco v. Plackis: was franchisor’s principal the employer of franchisor’s employee? Fifth Circuit reverses – 3 takeaways

by DLA Piper
Contact

We reported in September 2013 about Orozco v. Plackis,1 a case out of the United States District Court for the Western District of Texas in which the plaintiff (a cook in a franchised restaurant) filed an action under the Fair Labor Standards Act (the FLSA) against Craig Plackis, owner of the Craig O’s Pizza and Pastaria franchised restaurant chain. The plaintiff filed suit alleging that he was not paid overtime and minimum wage as required by the FLSA.

At the conclusion of the jury trial, the jury found, among other things, that Plackis was the plaintiff’s employer. Plackis then appealed to the United States Court of Appeals for the Fifth Circuit.2

Was Plackis the plaintiff’s employer?

The Circuit Court reversed the District Court’s denial of Plackis’s motion for judgment as a matter of law, holding that there was legally insufficient evidence for a reasonable jury to conclude that Plackis was the plaintiff’s employer under the FLSA and the “economic reality test.” Under the economic reality test, courts consider whether the alleged employer: (1) possessed the power to hire and fire employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records.

Power to hire and fire employees. Two facts were principally taken into consideration regarding this element: (a) some employees worked at both Plackis’s location and the franchisee’s location, and (b) Plackis met with the franchisee and provided advice on improving the franchisee’s profitability. The Circuit Court held that these facts did not show Plackis possessed the power to hire or fire the plaintiff.

The franchisee’s testimony explaining that she hired employees from Plackis’s location because they would not need training supported Plackis’s contention that this element was not met, as it suggested that the franchisee had an independent reason for hiring employees from Plackis’s location. As for testimony regarding a meeting between Plackis and the franchisee after which the franchisee removed certain employees from her work schedule, the Circuit Court noted that both Plackis and the franchisee testified that Plackis merely provided the franchisee with advice on improving the profitability of the franchised location. The Circuit Court found that “[t]his is conduct we would expect a franchisor to engage in with a franchisee, especially a struggling franchisee.” Plackis’s authority to hire and fire could not be inferred simply because of the sequence between the meeting and the changes implemented at the franchised location.

Supervised or controlled conditions of employment. The Circuit Court also concluded that the plaintiff failed to present legally sufficient evidence that Plackis supervised and controlled employee work schedules or conditions of employment in support of the second element of the economic reality test.

The proximity between Plackis’s and the franchisee’s meeting and the changes to the plaintiff’s work schedule did not establish that Plackis had the power to supervise or control employee work schedules or conditions of employment. The facts that Plackis reviewed the work schedules and trained the franchisee and the plaintiff did not suggest that Plackis controlled or supervised the employees at the franchised location because it was reasonable to assume that a franchisor would provide training to new franchisees and their employees. 

Determined the rate and method of payment. With respect to the third element of the test, the Circuit Court found that the plaintiff did not produce legally sufficient evidence that Plackis determined the plaintiff’s rate and method of payment. The District Court erroneously concluded that because Plackis was aware of the plaintiff’s salary, the jury could reasonably infer that Plackis was essentially advising the franchisee on his salary. In fact, the plaintiff testified that Plackis did not control his rate of pay. The Circuit Court also failed to understand how the fact that the plaintiff had to remain at work until an employee from Plackis’s restaurant arrived at the franchised location suggested that Plackis determined the plaintiff’s rate and method of pay.

The Circuit Court held that the franchise agreement also failed to support the jury’s verdict. Section 8a of the franchise agreement stated as follows: “Franchisee shall at all times comply with all lawful and reasonable policies, regulations, and procedures promulgated or prescribed from time to time by Franchisor in connection with Franchisee’s shop or business.” The section also stated: “Franchisee shall, irrespective of any delegation of responsibility, reserve and exercise ultimate authority and responsibility with respect to the management and operation of Franchisee’s shop.” Although section 8a demonstrated that Plackis had at least a certain degree of control over the franchised location, the Circuit Court determined that it was insufficient evidence to support the jury verdict. The plaintiff conceded that the franchise agreement alone was insufficient to establish that Plackis qualified as the plaintiff’s employer under the FLSA. The Circuit Court did not believe that the “innocuous statement” in the franchise agreement that the franchisee had to follow “policies and procedures promulgated by the franchisor for ‘selection, supervision, or training of personnel’” suggested that Plackis hired or fired employees, supervised or controlled employee work schedules or employment conditions, or determined the plaintiff’s rate and method of payment.

Maintained employment records. The plaintiff conceded that he failed to provide any evidence that Plackis maintained the plaintiff’s employment records and accordingly, the Circuit Court did not address the fourth element of the economic reality test.

Three takeways for franchisors

Although the Circuit Court stressed that its decision “did not suggest that franchisors can never qualify as the FLSA employer for a franchisee’s employees,” the case is important for several reasons. 

First, the Circuit Court held that although the franchisee implemented the franchisor’s suggestions regarding ways to increase the franchisee’s profitability, this did not lead to an inference that the franchisor had control over employment decisions. 

Second, the Circuit Court found that although the franchisor provided training to the franchisee’s employee, this did not suggest the franchisor had control over or supervised the franchisee’s employees.

Third, the Circuit Court held that general language in the franchise agreement regarding the franchisee having to follow the franchisor’s “policies and procedures” regarding the “selection, supervision, or training of personnel” did not suggest that the franchisor had control over or supervised the franchisee’s employees.


1 2013 WL 3306844 (W.D. Tex. June 13, 2013).

2 2014 WL 3037943 (5th Cir. July 3, 2014).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper
Contact
more
less

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.