The Odd Couple: Does the Department of Labor and Subway Compliance Agreement Necessarily Mean Increased Joint Liability For Subway?

eblast header

12/11/2017

Hi Visitor,

The Odd Couple: Does the Department of Labor and Subway Compliance Agreement Necessarily Mean Increased Joint Liability For Subway?

By: Jacquelyn E. Larson

On July 26, 2016, Subway, known for its franchise of sandwich restaurant chains, entered into an agreement with the Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”), with the hope that the Agreement will result in an increase in wage compliance at Subway franchises. The DOL anticipates that this Agreement will signal a new dedication to address significant wage compliance problems by cooperating directly with the employer. Employers, on the other hand, are holding their breath, waiting to see if such an Agreement will result in increased liability under the National Labor Relations Board’s (“NLRB”) joint liability standard.

The Agreement essentially only commits Subway, which the DOL states is the world’s largest franchisor, to compliance under the Fair Labor Standards Act (“FLSA”) laws that all employers are already bound to follow: laws including overtime and minimum wage requirements. The Agreement also provides that the WHD will provide compliance training materials; that Subway will share with the WHD its annual disclosures; and that both will meet quarterly to discuss compliance and ways to improve compliance, including using technology to improve aspects of payroll. Subway also agreed to “emphasize consequences” for non-compliance with its franchisees, and stated that it may “exercise its business judgment” in deciding how to address non-compliant franchisees.

The DOL notes that last year alone, the WHD found more than $38 million in back wages for nearly 47,000 restaurant workers – almost exclusively due to minimum wage and overtime violations. Its decision to work with employers, especially employers with such large numbers of workers, is therefore an unsurprising and commonsense approach to try to improve compliance.

However, many employers are already concerned about whether the Agreement would result in higher liability for Subway. As employers know, the NLRB employed a new sweeping test for finding employers jointly liable in 2015, in a series of cases including Browning-Ferris. The new standard subjects companies to liability for unfair labor practices even if they merely possess the potential to indirectly control even a single term or condition of employment. Subway reportedly raised the concern that the Agreement may be used as evidence that it should be held jointly liable for any unlawful activity that occurs at its franchises. Sections of the Agreement, particularly those emphasizing consequences for the franchisees and Subway’s control over payroll, are particularly susceptible to the conclusion that Subway has the ability to control conditions of employment at its franchises. Nevertheless, the company still voluntarily signed the Agreement without any assurances as to joint liability addressed in the Agreement itself.

COUNSEL TO MANAGEMENT:

Answers about wage compliance under federal and state laws, and about joint liability can be obtained without a public agreement potentially exposing the company to greater liability. We will keep an eye on Subway’s Agreement to see whether it will be effective at increasing compliance, as well as how it may be used at the NLRB. In the meantime, contact the experts at the Saqui Law Group if you have questions regarding your company’s compliance, business relationships, or potential joint liability.

 


If you're not interested any more » unsubscribe or Modify your Subscription
Sacramento
  • 1410 Rocky Ridge Drive, Suite 330
  • Roseville, CA 95661
  • Tel: (916) 782-8555
  • Fax: (916) 782-8565
Central Coast Office
  • 512 Pajaro Street, Suite 14
  • Salinas, CA 93901
  • Tel: (831) 443-7100
  • Fax: (831) 443-8585
Email footer
This e-mail contains graphics, if you don't see them » view it online..
Copyright © 2015 The Saqui Law Group. All Rights Reserved.
Materials on this newsletter do not constitute legal advice or establish an attorney-client relationship.