DOL's Focus on Franchising Leads to Landmark Agreement With Subway

Author: Michael Cardman, XpertHR Legal Editor

August 4, 2016

Subway, the nation's largest fast food franchise, has entered into a voluntary agreement with the US Department of Labor to encourage its 27,000-plus US franchisees to comply with the Fair Labor Standards Act (FLSA) and other federal labor laws.

The agreement marks the latest development in the DOL's recent strategy of focusing its enforcement efforts on franchising.

"Our 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," David Weil, the administrator of DOL's Wage and Hour Division, wrote in a blog post. "This agreement takes collaboration to the next level; we're not simply stating our good intentions and agreeing that everyone has an interest in complying with the law. We're using our limited resources to affect the most good."

The agreement does not prevent the DOL from investigating and enforcing FLSA violations at Subway locations. Subway franchisees have been found in violation of the FLSA in more than 1,100 DOL investigations between 2000 to 2013, according to an analysis of federal data by CNNMoney.

The DOL said Subway's "efforts illustrate both a commitment to the integrity of its brand and to the well-being of [Subway] restaurant employees nationwide." But the International Franchise Association warned that the agreement "could serve as evidence of a joint employment relationship in future litigation or a government enforcement action."

The DOL and the National Labor Relations Board (NLRB) have issued expansive interpretations of joint employment and made it an enforcement priority to hold controlling companies liable for their intermediaries' violations of labor and employment laws.

In related news, there have been a number of recent FLSA settlements that illustrate the ongoing vigorous enforcement by the DOL and the plaintiffs' bar, among them:

  • A federal district court gave preliminary approval to a $2.5 million settlement of a lawsuit alleging Groupon misclassified more than 2,000 of its sales representatives as exempt from overtime;
  • Two Massachusetts companies were ordered to pay $2.4 million in back pay to 478 workers, most of whom were intentionally misclassified as independent contractors; and
  • A company called Restaurant Associates and its subcontractor will pay more than $1 million in back wages to workers in the US Senate cafeterias for failing to pay prevailing wages required of federal contractors and for FLSA violations.