Jun 10, 2015 - Franchise Articles by |

By: Jeffrey M. Goldstein
(202) 293-3947
jgoldstein@goldlawgroup.com

Massage Envy escapes franchisee wage violations liability. Vicarious franchise liability is a pervasive problem for franchisors nowadays. 

In Vann, an Individual, o/b/o Himself and All others Similarly Situate v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D.Cal. 2015), the United States District Court for the Southern District of California dismissed claims against a massage franchisor, Massage Envy Franchising, LLC (“MEF”), for alleged violations of California minimum wage laws. Mr. Vann, one of the plaintiffs, worked as a massage therapist at two different California Massage Envy franchises, one of which was in Chula Vista, California (“Spa Chula Vista”), which was owned by Charis Group.

In essence, the franchisor argued that MEF is not an employer of Mr. Vann and cannot be liable for any wage and hour violations made by a franchisee. Under California Labor Code section 1194, an employee who received less than the legal minimum wage is entitled to recover the unpaid balance. Only an employer has a duty to pay wages. The federal court’s ruling, using an analysis previously applied by California and some other states’ courts, focused on the degree of control that the franchisor had and exercised over the franchisee (Charis Group), which in turn directly employed the plaintiff. In so doing, the Court pointed out that:

· MEF provided franchisee Charis Group with an Operations Manual that “contain[ed] mandatory and suggested specifications, standards, operating procedures and rules that [MEF] periodically prescribe[s] for operating a [franchise].”

· Pursuant to the Franchise Agreement, any personnel policies or procedures made available in the Operations Manual were “for [the franchisee’s] optional use and are not mandatory.”

· The 2014 version of the Operations Manual was the first version of the Manual that included any information about a pay policy, proving that “Franchisees are responsible for hiring, managing and compensating their employees within the law and are encouraged to consult their own legal counsel to ensure their compliance with all applicable laws.”

· The Operations Manual noted that California has more stringent rules regarding piece-rate payments. It urged franchisees who intend to implement a piece-rate pay policy to consult with legal counsel.

· The Franchise Agreement stated that it was the franchisee's responsibility to determine whether any suggested personnel policies were applicable in the franchisee's jurisdiction.

· The Franchise Agreement also stated: “You [Charis Group] and we [MEF] recognize that we neither dictate nor control labor and employment matters for you and your employees.”

· The Franchise Agreement also explicitly defined the relationship between Charis Group and MEF. It stated that Charis Group was an independent contractor, and had “no authority, express or implied, to act as agent of [MEF].”

· The Franchise Agreement further stated, “[MEF has] no relationship with [Charis Group] employees ….”

· MEF required Charis Group, and all other franchise owners to use a particular computer system, licenses, and support, in order to “generate and/or store member, accounting, and point of sale information.”

· In addition to the computer system, MEF required franchise owners to conform to other MEF standards, and to perform mandatory background checks of potential massage therapists using Universal Background Screening.

· MEF also implemented standard business hours for all franchise locations, although it allowed the regional director to choose a color scheme for employee attire.

· MEF also had a sample script for massage therapists to use when interacting with clients and guests. MEF also permitted certain types of massage, and prohibited the use of scented oils.

· Mr. Vann agreed that his pre-employment contact regarding a massage therapist position at Spa Chula Vista was with Cynthia Tovar, its clinic administrator, not the franchisor.

· Mr. Vann was informed he would be paid “hourly versus commission,” which meant that Mr. Vann would be paid either minimum wage for all the hours clocked in during a pay period, or $15 per hour for each hour he performed massages during the pay period, whichever was greater.

· Ms. Tovar (the franchisee’s employee) also communicated Mr. Vann's work schedule to him; and, either she or her assistant would review his requests for days off.

· All of Mr. Vann's performance reviews and disciplinary records are signed by either Ms. Tovar, or her assistant. All of the paychecks Mr. Vann received for his work at Spa Chula Vista were written by Charis Group.

· Mr. Vann acknowledged that he received an Employee Handbook, which described policies imposed by ADP Total Source and the “work site employer”—Charis Group.

· Mr. Vann's responsibilities at Spa Chula Vista were different from those at the other franchisee for which he had worked.

The Vann Court, in ruling for the Franchisor, noted that “California courts analyze the employment relationship between franchisors, franchisees, and employees under an agency theory, quoting from a 1971 California state court case: “In the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over the franchisee.” The court immediately, however, cautioned that, in the franchise context, the application of this theory could not be mechanistically applied, because “It is apparent that franchisors set “comprehensive and meticulous standards” to ensure uniformity among their franchises.” In this regard, a franchisor will be liable as an employer only “if it has retained or assumed the right of general control over the relevant day-to-day operations at its franchised locations ….”

In applying this standard in favor of the franchisor, the Court initially rejected, factually and legally, the main argument of the employee, that because multiple Massage Envy franchises use the same or similar payment policy, MEF must have controlled Mr. Vann's wages, hours, and working conditions. In so rejecting, the Court relied explicitly upon a very recent California Supreme Court decision on a similar legal issue, holding that Domino's Pizza, a pizza franchisor, was not liable to an employee for the sexual harassment she endured by a supervisor at the franchised location. Although the record in that prior case showed that “Domino's implemented a number of policies concerning appropriate attire and pizza-making, and even employed regional directors to check in on the franchises to ensure they were following Domino's policies”, the court in that case concluded that “Domino's could not be liable for the supervisor's sexual harassment of another employee because it was not within Domino's authority to hire, fire, or train the supervisor—or any of the franchisee's employees for that matter.”

The Vann Court’s analysis began by rejecting Mr. Vann’s argument regarding uniformity of procedures of all franchisees, stating: “The same evidence that supports Mr. Vann's argument that a uniform pay policy exists, however, also negates it … Spa Wildomar changed its pay policy in October 2013 and July 2014. Spa Corona changed its policy on January 1, 2014. There is no evidence that Spa Escondido or the northern California locations changed their pay policy at all. In addition, the two locations that did change their policies, did so at different times, and the new policy at Spa Wildomar was different from the new policy at Spa Corona” The Court concluded that “the lack of uniformity among these locations suggest that MEF did not control employee wages and hours but, rather, left the responsibility to the franchise owners.”

Second, the Plaintiff argued that “MEF exercised control over the hiring and firing decisions at the franchise locations because MEF distributed the Operations Manual to franchise owners, a script governing conversations between employees and clients, and because MEF requires all massage therapists pass a background check.” The Court disregarded this contention since, under the language of the Franchise Agreement, “Charis Group possessed the exclusive right to control the hiring and firing decisions at Spa Chula Vista.” In fact, the Court pointed out, “Mr. Vann testified that he never had any interactions with MEF, nor did any of the other franchise employees testify that they had any interactions with MEF.” The Court also was persuaded by Mr. Vann’s testimony that “it was the clinic administrator of Spa Chula Vista who hired and fired him, that Charis Group signed his pay checks, and that his daily work schedule and assignments were handed down from the clinic administrator or her assistant.” The Court went so far as to state categorically that “No evidence indicates that MEF exercised any involvement with the terms of Mr. Vann's employment.”

Third, the Court rejected the argument that “MEF's use of regional directors and its implementation of other workplace policies show that MEF exercised control of daily operations” especially because there was “no evidence that a regional director ever visited Spa Chula Vista while he was working, or that a regional director gave him instruction directly, or even that a regional director instructed the clinic administrator to do something.” The Court ventured further, stating that even “Assuming arguendo that a regional director did actively visit Spa Chula Vista, such activity does not rise to the level of exercising control over day-to-day operations.”

Fourth, the Court rebuffed the Plaintiff’s argument that “MEF's policies on attire, the types of massages offered, what types of products could be used during a massage, and the types of conversations that should be had with a client were policies to assist in brand uniformity” demonstrated control, concluding that “MEF is in the business of selling massages. Ensuring that a client can receive the same type of experience in California as she does in Texas is a necessary concern of franchisors.”

Last, the Vann Court held that there was “also no evidence that MEF controlled the employees' work schedules. On the contrary, the only evidence presented revealed that the work schedules were created, managed, and distributed within the particular franchise location.”

In dismissing the claim of Mr. Vann, and absolving the franchisor of any vicarious liability for its franchisees’ alleged labor law violations, the Court stated that “MEF was not an employer or joint employer of Mr. Vann, and therefore, cannot be liabile for any wage violations committed by Charis Group.”

By: Jeffrey M. Goldstein
(202) 293-3947
jgoldstein@goldlawgroup.com

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