Category Archives: employers

Separate Franchise or Joint Employer? – The Ninth Circuit rules in favor of McDonald’s NOT being a Joint Employer of its Franchisee’s Employees

Contributed by Mike Wong, October 3, 2019

gavel on white background

The Ninth Circuit U.S. Court of Appeals ruled in a California lawsuit that one of the most recognized franchises, McDonald’s, does not exert sufficient direction or control over its franchisees’ employees to be considered a joint employer under California statutory or common law and therefore is not liable for how the franchisee treats its employees.

In doing so, the Ninth Circuit affirmed the District Court’s ruling that McDonald’s was not an employer under California’s Labor Code definition under the “control” definition, the “suffer or permit” definition or under California common law. The court also rejected the Plaintiffs’ claims that McDonald’s could be held liable under an ostensible-agency theory or that McDonald’s owed the employees a duty of care.

In this case, Plaintiffs argued that McDonald’s requirements of the franchisee made it a joint employer. Specifically, Plaintiffs argued that McDonald’s exerted control through the franchise agreement that required the franchisee to use its point of sale (POS) system and in-store process (ISP) computer systems every day to open and close each location, managers received training at McDonald’s Hamburger University and then trained employees on meal and rest break policies, required franchisee employees to wear uniforms, and the franchisee voluntarily used McDonald’s computer system for scheduling, timekeeping and determining overtime pay.

The court followed the California Supreme Court’s rational in Martinez v. Combs 231 P.3d 259 (Cal. 2010) and held that a franchisor “becomes potentially liable for actions of the franchisee’s employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge and relevant day-to-day aspects of the workplace behavior of franchisee’s employees.” Patterson v. Domino’s Pizza, LLC, 333 P.3d 723, 725 (Cal. 2014). It further held that McDonald’s is not an employer under the “control” definition, as it did not have “control over the wages, hours or working conditions.” Martinez, 231 P.3d at 277. Much like in Martinez, the court found that directing control over workers geared towards quality control, does not rise to the level of controlling the day-to-day work at the franchise. Id. In essence, branding does not represent control over wages, hours or working conditions.

The court also held that McDonald’s was not an employer under the “suffer or permit” definition because it did not have any power to prevent the employees from working by hiring or firing them, directing them where to work, or setting their wages and hours.

The court further found that although there was evidence suggesting that McDonald’s was aware that the franchisee was violating California’s wage and hour laws, there was no evidence that McDonald’s had the requisite level of control over the employees’ employment to render it a joint employer. 

This is a major win for franchisors and employers, considering the influx of cases alleging franchisors are “joint employers” of their franchisees’ employees. It should be noted that this win may be short lived as the U.S. Department of Labor is working to modify or update its definition of when a franchisor is considered a joint or partial employer of its franchisee’s employees.

Additionally, this case must be viewed in context of the U.S. District Court of New Jersey’s recent decision in Michalak v. ServPro Industries, Inc., where the court held that the Plaintiff’s allegations that ServPro “issued manuals, training materials and other writings” specifying policies and procedures for hiring, training, disciplining and firing employees were sufficient to establish an agency relationship and avoid dismissal at the motion to dismiss stage. The court further held that the Plaintiff’s allegations that she informed ServPro and that ServPro tipped off the franchisee and buried the complaint, was sufficient to support a claim that ServPro had aided and abetted discriminatory conduct in violation of New Jersey law. 

When making the leap to becoming a franchisor or selling franchisees it is important to understand how much direction or control is too much and what actions or requirements could open you up to liability for the actions of your franchisee. As such, it is vitally important that franchisors team with knowledgeable labor and employment counsel that can keep them up to date on the evolving risk of being a joint employer or having an agency relationship with their franchisees.

Does Your Attendance Policy Violate the FMLA?

Contributed by Steven Jados, September 5, 2019

The recent decision in Dyer v. Ventra Sandusky, LLC, issued by the U.S. Sixth Circuit Court of Appeals (which has jurisdiction over Kentucky, Michigan, Ohio, and Tennessee), should motivate employers to take another look at whether their attendance policies run afoul of the Family and Medical Leave Act (FMLA).

There are plenty of gray areas in the law, but it is generally clear that employees are not to be disciplined because they are absent for FMLA-covered reasons. That also means that employees should not accumulate attendance “points,” e.g., under a no-fault attendance policy, for FMLA-covered absences when such points can contribute to discipline up to and including termination of employment.

Clocking In

To its credit, the employer in Dyer did not assign attendance points for FMLA-covered absences.  But unfortunately for the employer, that is not the end of the story.

Under the employer’s attendance policy, employees were eligible for a one-point “reduction” of their attendance point balance for every 30-day period in which the employee had “perfect attendance.” The employer’s definition of perfect attendance was not self-explanatory.  For instance, an employee could be absent for several different reasons — including vacation, bereavement, jury duty, military duty, holidays, and union leave — and still have “perfect attendance” and eligibility for attendance point reductions.

However, FMLA-covered absences were not included among the types of absences that preserved perfect attendance status and point-reduction eligibility. And if an employee had a FMLA-covered absence, his progress toward the 30-day point reduction goal was reset to zero.

The Sixth Circuit noted that the FMLA’s regulations generally require that an employee not lose benefits while on FMLA leave. Because attendance point reductions (and progress toward such reductions) are benefits, the Sixth Circuit noted that, at the very least, progress toward the 30-day goal should be frozen while employees are on FMLA leave, rather than being reset to zero. The court also indicated that if other “equivalent,” but non-FMLA forms of leave were counted toward the 30-day goal, then FMLA-covered absences should also be counted toward the 30-day goal.

The bottom line is that the Dyer decision instructs employers that disciplinary and benefit policies must be closely scrutinized to determine whether they might dissuade employees from taking FMLA leave — or otherwise harm employees who take FMLA leave. If harm results, or if employees are faced with the decision of taking FMLA leave or forgoing benefits, potential exposure to liability under the FMLA may exist.

Recent Decision Highlights Risk of Post-Employment Retaliation Claims

Contributed by Suzanne Newcomb, July 30, 2019

3d illustration of scales of justice and gavel on orange background

A federal court in Pennsylvania recently ruled that a former employee presented sufficient evidence to warrant a jury trial on a claim she was retaliated against after she resigned. The decision serves as a good reminder that anti-retaliation protections extend beyond the end of the employment relationship to protect former employees.

Cherie Leese complained of sexual harassment while employed by a state agency. She later filed a charge alleging she was issued discipline in retaliation for her report. The parties eventually settled. As part of that settlement, Leese resigned and agreed not to apply for or accept employment within a subset of state agencies. Leese expressly retained the right to seek employment in other areas of state government. When her numerous attempts to secure another position failed, Leese filed a new charge, this time claiming her former employer retaliated against her after she resigned by hindering her attempts to get a new job.

The state, like many large employers, coded former employees based on the circumstances of their separation. Leese was assigned an unusual code, “voluntary resignation contact former agency.” Inquiries regarding Leese were directed to the agency’s general counsel, who responded by stating, “I can make no comment regarding Ms. Leese’s separation.” Leese presented evidence to suggest the code and response were atypical and that they “raised a red flag” which took her out of the running for various positions. 

A well-drafted release protects against claims stemming from conduct occurring before the agreement is signed, but individuals generally cannot waive their rights with respect to future events. As some courts have put it, “an employer cannot purchase a license to discriminate.”

So what steps can an employer take to protect against post-employment retaliation claims?

First, establish a protocol for responding to requests for information regarding former employees, train all supervisors on the protocol, and insist they follow it, regardless of the circumstances underlying an employee’s departure. To better control what information is released, consider directing all requests to a designated individual or department (usually HR). To prove retaliation – whether post-employment or otherwise – a plaintiff must link her protected activity to an adverse action. Leese’s claim was bolstered by evidence that the agency deviated from its usual practice when responding to requests for information about her. The ability to prove that the plaintiff was treated in exactly the same manner as everyone else often allows an employer to avoid trial by defeating a retaliation claim on summary judgment. 

Second, when negotiating severance or a settlement, expressly discuss whether the individual is eligible for rehire and what information the employer will provide in response to reference requests and other inquiries about the individual (** be mindful of restrictions in your local jurisdiction and/or industry – in Vermont, for example, including a no-rehire provision may invalidate a sexual harassment settlement). Incorporating the parties’ agreement on these items into the formal agreement provides certainty for both parties and avoids surprises down the road.

United States Supreme Court Confirms and Limits Court’s Deference to Agency Guidance

Contributed by Allison P. Sues, July 11, 2019

Judge’s Supreme Court gavel with law books

On June 26, 2019, the U.S. Supreme Court confirmed the continued viability of Auer deference, an interpretive doctrine that requires courts to defer to an agency’s reasonable reading of a genuinely ambiguous regulation. In confirming the use of Auer deference, the Supreme Court also narrowed its scope, setting out clear limits to courts’ use of this doctrine. This decision came in the case Kisor v. Wilkie, which involved an ambiguous regulation of a Department of Veteran Affairs rule.  

In affirming Auer deference as a viable interpretive tool for courts to employ when deciding on two readings of a genuinely ambiguous rule, the Court reasoned that Congress generally wants agencies to play the primary role in resolving these questions. As the body that promulgated the rule at issue, the agency is in the best position to know the regulation’s original meaning and possess the expertise needed to interpret rules on specific subject matters. Determining the meaning of an ambiguous rule often requires policy-based judgment calls – a job more appropriate for politically accountable agencies than appointed judges. Finally, deferring to an agency’s interpretation of a rule promotes consistent application of those rules as an agency’s guidance has greater cover than a single district court. 

In confirming the use of Auer deference, the Court was also insistent on its limits. There are several instances in which Auer deference is not warranted. First, the regulation in question must be genuinely ambiguous even after a court has exhausted all of its traditional tools of construction. Second, the agency’s interpretation must be reasonable. Third, the agency’s interpretation must be an “official” or “authoritative” position taken by the agency rather than an ad hoc statement by an agency employee that does not necessarily reflect the agency’s official views. Fourth, the agency’s interpretation must rely on its specific expertise. Finally, the agency’s interpretation must reflect fair, considered, and consistent judgment. 

The Court’s decision in Kisor is a significant one for employers because the DOL and EEOC have issued detailed regulations bearing on various employment statutes, and Courts often look to these regulations in deciphering employment law claims. When the regulation itself does not answer the question, parties may ask the Court to defer to the agency’s guidance on its regulations, be it in the form of a regulatory appendix, compliance manual, or other policy guidance documents or statements. The Supreme Court’s decision in Kisor allows this – but with clear limits. 

Take the Seventh Circuit’s recent decision in Richardson v. Chicago Transit Authority (decided just prior to Kisor but consistent with Kisor’s holdings), which held that obesity is not a disability under the ADA if there is no evidence of an underlying physiological condition. In arguing that his obesity should constitute a disability, the plaintiff pointed to EEOC interpretive guidance that, he contended, indicated that a person has an ADA impairment if his weight is outside of a normal range. The Seventh Circuit held that even if the EEOC guidance did state this, the Court would not defer to the agency’s guidance because it was inconsistent with the text of the regulation. The regulation defined impairment as a “physiological disorder or condition.”  Determining that this regulation was not truly ambiguous, Auer deference was not justified.

So what should employers take away for the Kisor case? Agency guidance, appendixes, and other policy statements should not be ignored. While there are strict limits to the application of Auer deference, courts will continue to defer to an agency’s interpretations of its own rules in certain situations.

Missouri Appellate Court Declines To Recognize Cause Of Action For Negligent Recommendation To A Prospective Employer

Contributed by Brian Wacker, June 12, 2019

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There is no duty of care to “not make a negligent recommendation to a prospective employer” in Missouri. That is the upshot of an April, 2019 ruling out of Missouri’s Southern District Appellate Court, Doe v. Ozark Christian College, which is sure to have Missouri employers and human resource professionals breathing a collective sigh of relief – at least for now.

In Ozark, the defendant is a religious college. The school educates students in ministry and from time to time makes recommendations to prospective employers – i.e., churches – regarding placement of those students in open positions. The college has no affiliation with the churches who hire students the school recommends. The plaintiff in Ozark claimed he was sexually abused by a minister at his church from 2006 to 2010. The minister had been hired by the church upon the college’s positive recommendation of him in 2004. The plaintiff filed suit against the college, alleging that it owed a duty to not make a negligent recommendation to the church about the employee who allegedly abused him years later. Even though no such duty had ever been recognized under Missouri law, the plaintiff invited the court to recognize a new cause of action based on policy arguments and the fact that other states (specifically, California and Texas) had arguably recognized such claims.

Luckily for employers across the state, the Southern District affirmed the lower court’s summary judgment and declined the plaintiff’s invitation to find such a duty exists. 

First, the court rejected the notion that the college somehow assumed a duty under Missouri law in making a “gratuitous provision of an employment recommendation.”  The court noted that the plaintiff did not even make such an allegation; instead, all he had alleged was that after graduation, the college assisted and guided the employee at various churches from 1998 to 2004. This, according to the court, did not support even an inference that the college intended to benefit the employer church when it gave the recommendation. As such, there was no such duty under existing Missouri law.

Second, and perhaps more consequential for Missouri employers, the court rejected the plaintiff’s policy-based arguments to create a new cause of action out of thin air. While the court noted that California and Texas arguably recognize the alleged duty the plaintiff was pushing, a majority of other states, including Kentucky, Indiana, Illinois and New York, have rejected it.  

The court sided with the latter states and declined to recognize this new cause of action.  However, the court appeared to couch its decision, at least in part, in its role as “error-correcting” court, as opposed to the Missouri Supreme Court, which is the “law-declaring” court. The plaintiff apparently read this language as an invitation because on May 2, 2019, he filed an application to transfer the matter to the Supreme Court for further review.

Also, it is important to note that in Ozark, there was no indication that the college had any knowledge or indication that the employee minister may sexually abuse someone when it made the recommendation. (The only allegation was that the employee subsequently abused the student.)  If that had been the case, the court could easily have gone the other way.  States such as Missouri’s neighbor Illinois have recognized a duty in making recommendations, where there is prior knowledge of bad acts or conduct, in this very type of circumstance.  See e.g., Doe v. McLean County Unit District No. 5, 973 N.E.2d 880 (Ill. 2012)

Obviously, how the Supreme Court rules will have a major impact on employers and human resource professionals in Missouri going forward. Potential exposure to liability for the future acts of applicants for whom someone simply responds to a request for recommendation could have a significant, chilling and stifling effect. What former employer would want to go out on a limb to make a recommendation for an applicant if they can be potentially liable based on that applicant’s potential future conduct? What incentive would they have to even respond?

And this is to say nothing of the harmful effect it could have on prospective employers, who would likely be deprived of otherwise helpful information about applicants in the hiring process. If recommendation requests go unanswered, the hiring employer has less useful information about the applicant to make its hiring and personnel decisions.

In short, a recognized cause of action for negligent recommendations could be bad news for Missouri employers and employees alike.

This blog will monitor the Supreme Court’s review and update when a final determination is made.

U.S. Citizenship and Immigration Services Policy Challenged on Third-Party Worksites

Contributed by Jacqueline Lentini McCullough, June 7, 2019

A U.S. Citizenship and Immigration Services (USCIS) memorandum-issued policy is at the heart of a court case challenging recent H-1B visa denials.

The “Contracts and Itineraries Requirements for H-1B Petitions Involving Third-Party Worksites” memo was issued on February 20, 2018 without any notice or comment period required by the Administrative Procedure Act (APA). The memo directs adjudicators to ensure a contractor has actual and exclusive “control” of the contractor’s employees at the third-party site as a criterion for visa approval. This requirement comes from a rigid interpretation of the Department of Labor’s definition of “employer” which reads: “Has an employer-employee relationship with respect to employees under this part, as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the work of any such employee….” Instead of considering any one of these circumstances as qualifying, USCIS effectively changed the “or” to an “and,” requiring all of them.

H-1B visa denial rates skyrocketed the past two years, especially for contractors working at third-party worksites. Denial rates for initial H-1B petitions in Fiscal Year (FY) 2018 were 1 % for large technology companies but 34%-80% for companies that put H-1B visa holders at third-party sites. Third-party site work factors highly in IT consulting.

Visa Stamp

After having many H-1B visas denied or issued for short validity periods, several IT consulting firms filed lawsuits against USCIS. Those lawsuits have been consolidated into one under the aegis of the IT industry trade association ITServe Alliance.

Judge Rosemary Collyer presided over a court hearing of ITServe Alliance v. USCIS on 05/09/2019. Plaintiff attorneys produced data showing from FY 2012 to FY 2017, USCIS approved 94 % of their client’s ERP analysts’ H-1B petitions. During FY 2018 to FY 2019, the approval rate dropped to 19%.

Judge Collyer has taken issue with the disparate visa approval rates between different industries and USCIS’s requirement that contractors show three years’ worth of specific work assignments for H-1B petitioners when they are allowed “nonproductive” time as long as they are paid.

As Judge Collyer considers the case, she will rule on whether discovery is warranted to find out what has caused the different adjudications of H-1B petitions. Not only are H-1B approval rates markedly down for the IT industry, but requests for evidence and H-1B petition processing times have ballooned.

Requests for evidence (RFE) for all H-1B petitions have jumped from below 30% in first quarter FY 2017 to 60% in first quarter FY 2019. Meanwhile the number of petitions approved with a completed RFE has sunk from 80 % to just over 60 %.

Stay tuned as we will continue to provide updates as new information emerges.

Do I Have to Pay Employees to Attend Company-Sponsored Volunteer Events?

Contributed by Suzanne S. Newcomb, April 30, 2019

Volunteer Charity Helping Hands Give Concept

Company sponsored volunteer activities foster a positive corporate culture and can improve employee engagement and morale. On March 14, 2019, the U.S. Department of Labor issued an Opinion Letter that makes wage and hour compliance associated with corporate volunteer campaigns a bit easier. The Opinion Letter clarifies that employers are not required to pay non-exempt employees for volunteer time outside their normal work hours so long as participation is truly voluntary and the employer does not direct the volunteer activities. The DOL further confirmed that an employer can incentivize volunteering to a limited degree.

In general, an employer must compensate non-exempt employees for all the time they are required or allowed to work. Under federal Fair Labor Standards Act regulations, even time a non-exempt employee devotes to public and charitable causes is compensable if the employer requests the employee engage in the volunteer efforts, directs or controls the employee’s efforts, or requires the employee to be on the employer’s premises. However, time an employee voluntarily devotes to public and charitable activities outside of his or her normal working hours is not compensable. 29 C.F.R. § 785.44.

At issue in the recent opinion was a bonus paid to the group of employees whose volunteer efforts had the greatest community impact. Citing earlier opinions, the DOL said an employer may consider employee volunteer efforts as a factor in calculating bonuses without incurring wage liability for volunteer time outside of regular working hours so long as (1) volunteering is truly optional; (2) choosing not to volunteer does not adversely affect working conditions or employment prospects; and (3) volunteering does not guarantee any employee a bonus.

Of course, volunteer activities must benefit a public or charitable purpose. One cannot “volunteer” to benefit a for-profit company. Even non-profit employers must be careful not to designate any time employees devote to their regular work duties as “volunteering.” Employees of non-profit organizations can only volunteer for that organization in a capacity that is distinct from their normally assigned tasks.  

The opinion letter and this post address obligations arising under federal law only. States can and often do impose more stringent regulations so the requirements in your particular jurisdiction may dictate a different outcome. Moreover, the DOL opinion is limited to the particular circumstances presented.

So in general, under federal law, if your employees engage in company sponsored volunteer activities during work hours or time they would ordinarily be working, you must pay them for that time.  You do not need to pay employees who voluntarily choose to volunteer outside of regular work hours. However, time an employee spends volunteering, even if outside regular work hours, can become compensable if participation is required by the employer, employees suffer adverse consequences for choosing not to participate, the employer directs or controls the employees in their volunteer activities, or those who participate are provided a direct guaranteed rewarded.