By Pamela Wolf, J.D.
While the ongoing battle between federal agencies and franchisors over potential franchisor liability for franchisee employment law violations continues, Subway and the DOL Wage and Hour Division have entered into what some might see as a "can’t lick them, join them" agreement for both sides. The new compliance strategy comes in an industry that has significant compliance problems—and it might be the handwriting on the wall for the way the WHD would like to do business going forward.
Calling it "a creative partnership," Administrator Dr. David Weil announced that the WHD has signed a "cooperative agreement" with Subway that builds on the division’s ongoing efforts to provide technical assistance and training
to Subway’s franchisees. Under the agreement
, the WHD will provide data about its concluded investigations
with Subway, and Subway will in turn share its own data with the WHD—an arrangement that Weil characterized as "generating creative problem-solving and sparking new ideas to promote compliance."
Notably, the data-sharing under the agreement does not
require either party to compile and provide new data. The WHD already makes public information on completed investigations and will, under the agreement, help Subway "understand and use this publicly available data so that Subway can make informed business decisions that reflect existing and potential franchisees’ history of FLSA violations." Subway, for its part, will share with the WHD information that it already provides annually to other government agencies, such as the Federal Trade Commission, in an agreed-upon electronic format.
Boosting franchisee compliance.
Another significant aspect of the deal, which includes many other components, is that Subway and the WHD will both "explore ways to use technology to support franchisee compliance, such as building alerts into the payroll and scheduling platform that Subway offers as a service to its franchisees." Subway and the WHD will also meet quarterly "to engage in a dialogue about improving franchisee compliance."
Under the agreement, Subway will require franchisees to comply with all laws, including the FLSA, and may terminate an existing franchise, refuse to give a franchisee any additional franchise opportunities, or impose other discipline based on the franchisee’s history of FLSA compliance.
The WHD sees the agreement, and Subway presumably does, too, as a win-win situation. "Subway, like every franchisor, is committed to protecting the integrity and identity of its brand," Weil wrote in a blog post
. "Our mission is to protect workers’ paychecks. The agreement serves those two objectives by boosting franchisees’ compliance with labor laws, and helping us to ensure that workers get paid the wages to which they are legally entitled."
Does the franchisor get a break?
In case you’re wondering if the cooperation gets Subway off the hook for any franchisee violations, the answer is probably not. "The execution of this agreement shall not waive any of Subway’s liability if found in violation of the FLSA or any other statute enforced by the WHD," the agreement states. Nor does it limit remedies or actions granted under statute to either party. The agreement also declares that the WHD "retains its prosecutorial discretion to investigate and seek remedies for any violations of the FLSA or other relevant laws."
Grappling with the restaurant industry compliance problem.
Weil noted that there are significant compliance problems in the restaurant industry. Last year, the obtained more than $38 million in back wages for nearly 47,000 restaurant workers, almost exclusively due to minimum wage and overtime violations. Because some 7.3 million employers are covered by the laws enforced by the WHD, the division must strategically pursue its mission to ensure employees are properly paid for their hard work.
To that end, the WHD is "exploring new and innovative opportunities to shape compliance behavior in the modern workplace. and creative partnerships have become critical to raising compliance with basic labor standards." Weil explained. He said that the division’s work with Subway "breaks new ground in how we can work with the regulated community—not only with employers, but with franchisors, suppliers, retailers and others—to channel their influence to ensure that all employers along a supply chain or otherwise linked in commerce play by the rules."
In taking collaboration to the next level, Weil said, the agreement uses the WHD’s limited resources to effect the most good. When circumstances warrant, the franchisor will remind franchisees of the WHD’s authority to investigate their establishments and examine records. Subway may exercise its business judgment in dealing with a franchisee’s status within the brand based upon any history of FLSA violations. "The agreement provides a model for exacting compliance, at scale, in an industry that has experienced problems," Weil wrote.
"There is not a one-size-fits-all workplace, so our multi-faceted approach must constantly evolve to keep pace," Weil said. "We have an obligation under the law to ensure that employers operate in compliance—and this agreement represents a new alternative to help us accomplish that mission."