Court Denies Motion to Dismiss Suit Alleging that Franchisor Was a Joint Employer

In Acuff v. Dy N Fly, LLC, four female plaintiffs sued a franchisor of hair salons (Dy N Fly), two of its franchisees, and the owner of the two franchisees for wrongful retaliatory termination and sexual harassment in the workplace. The four women allegedly experienced inappropriate workplace conduct, including sexual comments, inappropriate touching, and being watched via the salon video cameras. The plaintiffs told Dy N Fly’s owner and cofounder about these incidents on multiple occasions. In 2021, while one of the women was on sick leave, the franchisees fired another individual plaintiff after she expressed opposition to the harassment. The franchisees then refused to hire back the plaintiff on sick leave because of her “association” with the fired plaintiff. The other two plaintiffs left Dy N Fly that same year due to the alleged sexually hostile work environment.

The plaintiffs sued Dy N Fly on the grounds that the franchisor jointly employed the plaintiffs along with the franchisees. Dy N Fly filed a motion to dismiss, challenging its status as a joint employer and arguing it could not be liable as a joint employer because “it [was] a franchisor and did not possess sufficient control over the day-to-day employee supervision required to be considered a joint employer.” An ability to hire, fire, supervise, control, or discipline employees, as well as the franchisor’s ability to affect the employees’ compensation and benefits, typically are factors in the joint employer analysis.

The court held that the women plausibly alleged Dy N Fly was a joint employer and denied Dy N Fly’s motion to dismiss, focusing on the following alleged acts of Dy N Fly’s owner and cofounder:

1. His personal introduction of one of the plaintiffs to the franchisees’ owner for the purpose of employment;
2. His dictated text message from one of the plaintiffs to the franchisees’ owner in an effort to stop the sexual harassment;
3. Informing one of the plaintiffs on multiple occasions that he would speak with Dy N Fly’s president to report the harassment; and
4. His offer to the fired employee of a severance package in exchange for her agreement to not sue the company.

The court found these four actions created “the plausible inference that Dy N Fly ‘share[d] or codetermine[d] those matters governing essential terms and conditions of employment.’” Similarly, the level of detail in Dy N Fly’s Brand Standards Manual table of contents suggested Dy N Fly exerted a high degree of control over many of the plaintiffs’ terms and conditions of employment, and the workplace sexual harassment guidance franchisees should apply.

Dy N Fly argued their franchise agreements included a disclaimer of responsibility over personnel decisions. While this factor weighed against the plaintiffs’ joint employer theory, the court noted it was not dispositive, particularly at the pleadings stage. Next, Dy N Fly pointed to right-to-sue letters from the Equal Employment Opportunity Commission (EEOC), which concluded the plaintiffs were not in an employment relationship with Dy N Fly. However, the court stated that the EEOC’s decisions on the merits of a charge “do not preclude trial in federal court.”

Takeaways

This case is instructive because it reminds franchisors to consider carefully their level of involvement in franchisees’ hiring decisions and internal policies. Additionally, it demonstrates the dangers of mediating disputes between a franchisee and its employees. Any of these actions can weigh in favor of a joint employment claim.