The judicially-devised “economic realities” test is designed to determine whether an individual is  liable as an “employer” under the FLSA, typically in addition to a corporate entity. For the second time in the past few years, the Court of Appeals for the Fifth Circuit has ruled that a franchisor was not the “employer of an individual with a business relationship to the employing entity, based on insufficient evidence of employer status.  Orozco v. Plackis, 2014 U.S. App. LEXIS 12680 (5th Cir. July 3, 2014).

In Orozco, plaintiff worked for a franchisee of a local restaurateur, who owned a separate restaurant under the “Craig O’s” brand and also licensed franchisees to operate under the Craig O’s trade name.  Plaintiff brought FLSA claims not only against the franchisee corporation and its owners, but the franchisor’s principal, Craig Plackis.  At trial, a jury found Plackis liable as an employer.

On appeal, Plackis argued that the evidence proffered by Orozco was insufficient as a matter of law to support the jury’s finding as to his employer status.  Citing its prior precedent in Gray v. Powers, in which the court affirmed a summary judgment ruling that an absentee nightclub owner was not an employer, the Fifth Circuit agreed, and reversed the trial court ruling.  The court’s analysis centered on its review of the trial testimony concerning a meeting between Plackis and the franchisee, Sandra Entjer.  The trial court had upheld the jury’s verdict based on evidence that the Plackis and Entjer discussed issues such as scheduling and compensation at the meeting, and that Entjer and her husband hired some of Plackis’ employees to work at their franchisee store. The appeals court found these facts insufficient to support the jury’s finding, noting the unimpeached testimony from Plackis and Entjer (which plaintiff’s own testimony corroborated) that the latter made her own decisions regarding employment, scheduling and compensation, and that Entjer had her own independent reasons for hiring Plackis’ workers, namely their familiarity with operating a Craig O’s store.

Different federal Courts of Appeal continue to apply their own formulations of the economic realties test to questions of joint or individual liability under the FLSA.  Given the Supreme Court’s rejection of one recent certiorari petition seeking review of this issue, business owners must continue to analyze their personal exposure to wage claims by reference to the law of their Circuit.