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Recently, the United States District Court for the Eastern District of Pennsylvania granted summary judgment for franchisor Choice Hotels International, Inc. (Choice Hotels), finding that it was not a joint employer of the housekeepers employed by one of its franchisees as a matter of law under the Fair Labor Standards Act (FLSA) and the Pennsylvania Minimum Wage Act (PMWA). The opinion, DiFlavis v. Choice Hotels International, Inc. et al., No. 2:18-cv-03914 (February 3, 2020)1, is a win for franchisors and reinforces the principle that a franchise agreement drafted to preserve brand standards cannot establish joint employment under the FLSA.

Background

The underlying dispute involved a housekeeper employed by Rama Construction Company, Inc. (Rama), who alleged that both she and others similarly situated were not paid the required overtime wages under the FLSA and the PMWA. Rama owns and operates one Clarion-brand2 hotel pursuant to a franchise agreement with Choice Hotels, and the housekeeper brought suit against both Rama (as her employer) and Choice Hotels (under a joint employer theory). The franchise agreement made clear that Rama was an independent contractor and was “solely responsible for exercising ordinary business control over the Hotel, including personnel matters of Hotel employees.” In addition, the franchise agreement was drafted to ensure that franchisees like Rama maintained brand standards.

The Decision

Judge Pratter of the Eastern District of Pennsylvania utilized the Third Circuit's four-factor Enterprise standard to hold that Choice Hotels was not a joint employer of the housekeepers. In analyzing whether an entity is a joint employer under the Enterprise test, courts look at whether the alleged employer has:

  1. Authority to hire and fire employees;
  2. Authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours;
  3. Day-to-day supervision, including employee discipline; and
  4. Control of employee records, including payroll, insurance, taxes, and the like.

Courts also consider the “total employment situation” and the “economic realities of the work relationship.”

Judge Pratter held that all of these factors weighed in favor of Choice Hotels. Notably, Judge Pratter determined that Choice Hotels requires franchisees to adhere to housekeeping and maintenance standards “to maintain the Clarion hotel brand, not to control particular working conditions and responsibilities of housekeepers.” Judge Pratter also determined that retaining the right to audit the franchisee, solicit guest satisfaction surveys, and require general managers to participate in certain required trainings did not demonstrate day-to-day supervision over the franchisee’s employees. Instead, “these provisions focus on maintaining brand standards through limited, non-routine audits and evaluations.”  

Takeaway

This opinion helps to clarify that simply having a franchise agreement is not enough for a franchisor to be a joint employer, and is consistent with new rules recently published by the United States Department of Labor. However, potential joint employers such as franchisors, staffing agencies, temp agencies and other similar employers, should review all contracts and operational policies and procedures to ensure that they contain appropriate exculpatory language and would survive a joint employer analysis.

  1. The authors represented Choice Hotels in this case.
  2. Choice Hotels owns the Clarion hotel brand.