Employment Law Daily Franchisors of Subway fast food restaurant pulled into wage-hour dispute
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Wednesday, July 25, 2018

Franchisors of Subway fast food restaurant pulled into wage-hour dispute

By George Basharis, J.D.

A federal district court in New York allowed a former fast food franchise employee to amend his complaint to add claims against the restaurant’s franchisors. The former Subway employee, in his suit against Subway IP, Inc. learned during discovery that Franchise World Headquarters LLC (FWH) and Doctors Associates Incorporated (DAI), two wholly-owned subsidiaries of Subway, may be liable as franchisor employers for the franchise restaurant’s wage and hour violations. Although the employee waited until after the completion of discovery to add the franchisor claims, the additions were neither prejudicial nor futile, and his explanation for the delay was satisfactory. Also, the court determined that the allegations were sufficient to establish that FWH and DAI exercised formal control over employment and that they could be held liable as employers (De Jesus v. Subway IP Inc., July 17, 2018, Broderick, V.).

The former employee filed a lawsuit against the franchisee of a Subway sandwich shop seeking money damages for the restaurant’s alleged violations of state and federal labor laws. According to the employee, the restaurant regularly failed to pay minimum wages, overtime, and “spread of hours” pay when required. The employee also claimed that tips were withheld, and the restaurant failed to maintain proper records or to give required notices.

After learning that wholly-owned subsidiaries of Subway FWH and DAI may be liable as franchisor employers from deposition testimony of FWH’s and DAI’s designated Rule 30(b)(6) representative, the employee sought to add FWH and DAI as parties to the lawsuit. However, the employee waited until after discovery closed, and a year-and-a-half after filing suit, to seek leave to add the parties.

The court noted that permission to add parties to a lawsuit should be liberally granted unless doing so would cause undue delay or prejudice, the request is made in bad faith, or the addition of parties or claims would be futile. There were no claims of bad faith against the employee, but FWH and DAI argued that adding them to the lawsuit after such a significant period of time had passed since the filing of the case would be prejudicial. They also maintained that the claims against them were futile.

Undue delay and prejudice. FWH and DAI argued that the employee unduly delayed adding them to the lawsuit because they could have been added earlier in the litigation. But the employee offered a satisfactory explanation for the delay. According to the employee, he waited until the close of discovery to add FWH and DAI as parties because he wanted to confirm their roles in evaluating and overseeing the operations of franchise restaurants.

FWH and DAI also argued that adding them as parties to the lawsuit would necessitate further discovery and therefore joinder would be prejudicial. However, the court noted that neither a summary judgment briefing schedule nor a trial date had been set yet. So, any additional discovery would not significantly prolong resolution of the lawsuit.

Futility. The employee’s amended complaint alleged that FWH and DAI exercised control over the franchise restaurant and benefitted from the employee’s work. According to the amended complaint, FWH and DAI were authorized to inspect the franchise restaurant and review its employment records. They could terminate the franchise agreement for violations of law or the franchise agreement and provided guidance for the hiring and training of employees. The court determined that these allegations were sufficient to establish that FWH and DAI exercised formal control over employment and that they could be held liable as employers. Consequently, the claims against FWH and DAI were not futile.

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