Texas Court Finds a Franchisor Principal Was Employer of Franchisee’s Employee

By Kelline R. Linton,
Junior Associate.


In Orozco v. Plackis, the U.S. District Court for the Western District of Texas recently upheld an unusual jury finding that a franchisor principal was the employer of the former franchisee’s employee, although the employee testified that the principal had no direct control over his employment.


The plaintiff, who worked as a kitchen employee in a franchised restaurant before the location went out of business, filed an action for minimum wage and overtime against the founder and principal of the franchised restaurant chain under the Fair Labor Standards Act.


The plaintiff had testified that the principal did not hire him, did not have the authority to fire him, did not set up his schedule, did not determine his rate of pay or method of payment, and did not discuss his position or work responsibilities with him.


Despite the plaintiff’s own testimony regarding the principal’s lack of direct control, the court concluded that plaintiff, as a kitchen employee, would probably not understand the business relationship between the principal and the franchisee.


The court then found that an employer-employee relationship existed between the principal and plaintiff because: (1) the franchise agreement specifically required the franchisee to comply with the franchisor’s policies and procedures for the selection, supervision, and training of personnel; (2) the principal, as an individual, had examined work schedules for the franchised locations and advised the franchisee on cutting employees and hours worked to reduce labor costs; and (3) the franchisee had implemented some of the principal’s scheduling suggestions that expanded the plaintiff’s work duties.


So what is a franchisor to do?  This case is currently on appeal, and we do not necessarily believe that other Texas courts will follow suit on this issue.  However, it is wise for franchisors to review their franchise agreements to ensure that they give franchisees the actual authority and responsibility for their own employees.  Franchisors should also be mindful about any advice they give to franchisees that may directly affect the franchisees’ employees.


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