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First Ruling States Franchisee Staff May Be Franchisor Employees

A court ruling could prove troubling for franchisors because it preliminarily holds that employees of independently owned franchises may be employees of the franchisor under the Fair Labor Standards Act.

A federal district court in Missouri ruled last November to conditionally certify a class of plaintiff-employees in a collective wage and hour action brought against Hotshots Sports Bar & Grill. The named plaintiffs in White v. 14051 Manchester, Inc. were servers and/or bartenders employed at Hotshots locations who claimed they were  unlawfully required to participate in a tip pool with “back of the house” employees.

Gray Plant Mooty attorneys Quentin R. Wittrock and Maisa Jean Frank stated in an article last week that unlike Rule 23 class actions, the Fair Labor Standards Act  permits “collective” actions in which putative class members opt in to the action rather than opting out.

FLSA plaintiffs may seek early conditional class certification and a defendant may move at a later date to decertify the class. The legal burden for plaintiffs to obtain conditional class certification is less onerous than at the class decertification phase, which clearly impacted the court’s ruling in this case.

The court held that the plaintiffs met the standards for conditional certification because they were “similarly situated” under the company’s common tip-pooling policy. The franchisor argued that the putative class members were not similarly situated because some were employed by franchisees and were not controlled or employed by the franchisor.

The Gray Plant attorneys said the court rejected that argument, observing that the plaintiffs alleged the franchisor exercised control by sending its employees to help open the franchised locations. They said,

The court also noted that the FLSA broadly defines an employer to include any person “acting directly or indirectly in the interest of an employer in relation to an employee.” Given this broad definition and the FLSA’s remedial purpose, the court found that the franchise arrangements created sufficient control, at least for purposes of conditional class certification. 

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