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2d Circuit Affirms Jury Verdict Against Franchisor Based On Joint Employment Theory

Published by on September 13, 2010

In a textbook case on the dangers of operating an enterprise with integrated labor operations, the U.S. Court of Appeals for the Second Circuit recently affirmed a jury verdict against two defendants in a sexual harassment case brought by the Equal Employment Opportunity Commission on behalf of a group of female employees who worked for […]

In a textbook case on the dangers of operating an enterprise with integrated labor operations, the U.S. Court of Appeals for the Second Circuit recently affirmed a jury verdict against two defendants in a sexual harassment case brought by the Equal Employment Opportunity Commission on behalf of a group of female employees who worked for a franchisee.  The employees alleged that they had been verbally and physically harassed by male managers and co-workers at the defendant’s franchise location in Rochester, New York.  The twist is that the franchisor was also held liable under a joint employment theory.  More after the break.

The franchisor sought to be dismissed from the case before trial by filing a motion for summary judgment.  In that motion, the franchisor argued that it was not a “joint employer” with its franchisee.  The district court denied the franchisor’s motion in a lengthy opinion.  The opinion discusses all of the factors in the joint employer analysis and is worth reading to see how this analysis is performed.  Among the factors relied upon by the court in finding “joint employment” were: 

  • Common ownership of both companies (Note: for most franchisors, this will not be a factor because they have sold a franchise to an independent operator).
  • Joint human resources function, including hiring and firing of employees (i.e. integrated control of labor relations).  This is usually the critical factor that leads to a joint employer finding.
  • The same attorney represented both defendants in the lawsuit.

A copy of the opinion is here.

After the trial, the jury found that the franchise was part of an “integrated enterprise” with Everdry, and returned a verdict of $585,000 against the company.  The lengthy special jury verdict form is here.  The district court reduced the jury’s verdict to $471,096, and Everdry appealed the judgment. 

On appeal, Everdry argued that it was not an “integrated enterprise” with the franchisee, and therefore could not be held liable for the alleged harassment of the employees.  Based on a view of the entire record, the court of appeals did not find “such a complete absence of evidence supporting the verdict,” and so affirmed that district court’s judgment.  Everdry also argued that the jury’s punitive damages award was “so high as to shock the conscience.”  The court determined that the award was not “wholly without legal support” and affirmed the jury’s award.  A copy of the court’s order is here

The EEOC reported on the payment of the verdict back in May here.

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