Fast Food Liability: Would You Like Lawsuits With That?

, Corporate Counsel

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Note: This story has been updated to clarify the franchisor/franchisee relationship.

Fast food and restaurant chains keep popping up in the news, whether it’s because their workers are striking over pay or because a state attorney general is launching an investigation of alleged wage theft in the industry. With all of the attention on these food companies in the wage and hour context, what’s a franchisee to do?

The reality is that these businesses may have to worry about more than just the Fair Labor Standards Act (FLSA)—state labor laws may add even more complexity to wage and hour compliance regimes. J. Hagood Tighe, a partner at Fisher & Phillips, told CorpCounsel.com that there are several risk factors employers need to remain cognizant of if they want to avoid a potentially pricey lawsuit.

One possible risk, according to Tighe, is that “managers at the local level are perhaps tinkering with or changing time sheets to minimize their labor costs and reduce overtime."

Cooking the books along with the burgers might seem like a good way for franchises to save a dime, but the reality is that not awarding overtime when it is legally due can end up costing much more money in the long run. “FLSA violations can get very expensive very quickly,” Tighe said. “It doesn’t take too many employees being paid improperly to get a million-dollar or higher liability."

It’s not just federal wage and hour law that fast food management has to worry about—there is also the issue of state standards. And the state equivalents of the FLSA in some states, according to Tighe, contain longer statutes of limitations than the federal law does, giving disgruntled employees more leverage. He suggested that companies audit their employment records regularly to prevent problems before they happen.

Another problem for fast food and restaurant chains is the danger posed by the local delivery guy or gal. Usually when a delivery is made, customers have the courtesy to tip. However, some states require that the company put the fact that a gratuity is not included in writing, somewhere where the customer can see it. “There have been cases out there where people have tried to say the notice wasn’t adequate,” Tighe said. “It’s basically another claim that the company is keeping money that should otherwise be going to the employee.”

Tighe noted that work uniforms—a common sight at just about any fast food joint—may also prompt state or federal claims. Some states, he explained, have laws that require employers to pay for uniforms, but most do not. Employers in states that don’t require them to foot the bill often deduct the cost of the uniform from an employee’s paycheck. “If that’s a minimum-wage employee, that effectively reduces their pay below the minimum wage,” Tighe said, which poses a clear wage and hour threat.

Some companies may worry that if the franchise gets in hot water in the wage and hour area, the franchisor itself may also be at risk legally. “It has to do with how the franchisor manages their relationship with the franchisee,” said Tighe, who pointed out that the question of whether a joint employment or coemployment relationship can be formed between franchisor and franchisee involves a strange “catch-22.” Essentially, the more involved a franchisor is in the day-to-day workings of their franchisee stores and shaping their brand, the higher the risk of being imputed as a joint employer in a wage and hour suit.

But in most cases, he said, the franchisor will be dismissed from the claim early on, as it’s unusual to have such a strong legal relationship maintained between franchisor and franchisee beyond the initial stages of the matter when it comes to wage and hour claims.

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