Do Maryland franchisors and contractors face liability as putative “joint employers” of their franchisees’ and subcontractors’ employees? That question arises in various contexts, from liability for unpaid wages and overtime, to workplace discrimination, to liability for negligence and other torts. The issue is facing increasing scrutiny under Maryland law.
Consider pending litigation involving the well-known Ledo Pizza System, its Owings Mills franchisee and certain of the franchisee’s employees, who sued both Ledo and the franchisee in federal court claiming that they were fired in retaliation for complaining about unfair wage practices and age discrimination.
Seeking to dismiss all claims asserted against it, Ledo argued that only its franchisee could face potential liability because only the franchisee had had a direct employment relationship with the plaintiffs.
In an opinion released in late July, Lora v. Ledo Pizza System, the court mostly rejected Ledo’s arguments. Although acknowledging that “[c]ourts evaluating franchise relationship[s] for joint employment had routinely concluded that a franchisor’s expansive control over a franchisee does not create a joint employment relationship” on its own, the court found that the plaintiffs had sufficiently asserted grounds that could support the finding that a “joint employer relationship” existed between Ledo and its franchisee.
In permitting the employees to pursue the bulk of their claims against Ledo as well as the franchisee, the court emphasized that the plaintiffs’ complaint alleged that Ledo had participated in the principal plaintiff’s hiring process; that a Ledo employee “controlled and directed” the principal plaintiff’s work by requiring him to submit daily and weekly reports; and that Ledo pressured the principal plaintiff to fire another other plaintiff in violation of federal law.
Relying on the Fourth Circuit’s decision earlier this year in Salinas v. Commercial Interiors, the court followed the six-factor test established in that case for determining whether another entity could be considered a “joint employer” liable for wage claims under the Fair Labor Standards Act and Maryland’s Wage and Hour Law.
The test did not require that the co-defendant be considered an “employer” under traditional common-law agency principles, but only that its contributory influence on the terms and conditions of a worker’s employment was sufficient to give rise to liability. Factors to be considered are:
- whether a direct employer and its co-defendant “jointly determine, share, or allocate the power to direct, control or supervise the worker, whether by direct or indirect means”;
- whether both parties share the power to “hire or fire the worker or modify the terms or conditions” of employment;
- the continuing relationship between the direct employer and the putative joint employer;
- any shared management or common control existing between the two entities;
- whether the work is performed on premises controlled by either or both of the entities; and
- whether the two entities “jointly determine, share or allocate responsibility over functions ordinarily carried out by an employer,” such as payroll and providing equipment, tools or material required to perform the work.
All factors need not be satisfied, and the court can also consider additional factors relevant to a particular case.
The Fourth Circuit’s holding finding joint employment in Salinas involved a common scenario, a contractor that exercised considerable control over its largely captive subcontractor on a common job site. This would appear to be a far closer relationship than that normally shared by franchisor and franchisee. Yet the court permitted claims against Ledo to proceed for trial.
How far these “joint employer” cases will go remains to be seen. Importantly, the Ledo court permitted the plaintiffs to pursue “joint employer” claims not only under the Fair Labor Standards Act but also under the federal Age Discrimination and Employment Act, thus going beyond Salinas.
Many questions remain. What, if any, impact will expanded notions of joint employment have on third party claims seeking to impose joint liability on purported “joint employers” because of the negligence of an employee? Can the doctrine be expanded beyond franchisor-franchisee and general contractor-subcontractor relationships to entities such as Comcast, which asserts significant control over the service contractors they use for installing lines and the like? Time will tell.
If you have a question about joint employer status, Astrachan Gunst Thomas can help. Contact Elizabeth Harlan at 410-783-3528 (eharlan@agtlawyers.com) or Chris Lyon at 410-783-3547 (clyon@agtlawyers.com).
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