Franchise 101: Waltzing Around Joint Employer Issues; and Going on Vacatur

Franchisor 101: Waltzing Around Joint Employer Issues

A district court in Maryland granted a franchisor’s motion to dismiss against an employee in a discrimination and wrongful termination case. The court concluded the employee failed to show that she was an employee of the franchisor.

Two franchisees in the Arthur Murray dance studio system, Arthur Murray Dance Studio of Columbia and Arthur Murray Dance Studio Baltimore, hired the plaintiff employee as a dance trainer. The employee claimed that an hour after complaining to her manager about disparate treatment, racially charged bullying, and condescending and humiliating comments, she was fired.

The employee filed suit against the franchisees and the franchisor, Arthur Murray International, Inc., for race and disability discrimination, hostile work environment, and wrongful termination in violation of public policy. The employee alleged that she was subjected to racial and disability discrimination during the course of her employment. She also claimed that her hiring was made contingent upon her securing a babysitter, which caused discrimination and heightened scrutiny in her employment by the franchisees.

With respect to her claims against Arthur Murray International, the employee claimed that the franchisor was a joint employer with the franchisees. The court analyzed nine factors to determine whether plaintiff was an employee of franchisor:

• Authority to hire and fire
• Day-to-day supervision of the individual, including employee discipline
• Whether the putative employer furnishes the equipment used and the place of work
• Possession of and responsibility over the individual’s employment records, including payroll, insurance, and taxes
• The length of time during which the individual has worked for the putative employer
• Whether the putative employer provides the individual with formal or informal training
• Whether the individual’s duties are akin to a regular employee’s duties
• Whether the individual is assigned solely to the putative employer
• Whether the individual and putative employer intended to enter into an employment relationship

The court noted that in evaluating franchise relationships for joint employment, other district courts have routinely concluded that a franchisor’s expansive control over a franchisee does not create a joint employment relationship. The court held that “labels and conclusions” are not enough regarding the employee’s claim that Arthur Murray exerted control over employment policies and training and failed to enforce anti-discrimination policies. The court reasoned that broadly stating the employee was employed by all three defendants, without more, could not be assumed as true. The court granted Arthur Murray’s motion to dismiss in its entirety.

The franchise industry has faced significant uncertainty around the joint employer standard. Congress is currently reviewing the American Franchise Act, which creates a set of conditions for determining whether franchisors’ conduct and/or policies may subject them to joint employer liability. Franchisors can adopt a number of measures to minimize the likelihood of being named as a defendant in a joint employment case. See Uniting Behind the American Franchise Act: A Bipartisan Effort to Clarify the Joint Employer Standard

Sharp v. Arthur Murray Int’l, Inc. 2025 U.S.Dist.LEXIS 203826 (D. Md. Oct. 16, 2025).

Franchisee 101: Going on Vacatur

A district court in Pennsylvania confirmed a final arbitration award in favor of a franchisor, denying the franchisees’ motion to vacate the award.

An association of franchisees sued franchisor Choice Hotels International, Inc. for fraud and breach of contract, among other claims, alleging that Choice Hotels required them to pay inflated prices to third-party vendors, abide by a variety of unconscionable franchise terms and practices, racially discriminated against specific franchisees, and obstructed franchisees from leaving the system by imposing onerous liquidated damages provisions.

Choice Hotels moved to compel arbitration based on the parties’ agreement to arbitrate, which the court granted. The court stayed the district court proceeding pending arbitration. After receiving an arbitral award of $645,770.43, Choice Hotels sought to have the award confirmed in federal court. The franchisees filed a cross-motion to vacate the award.

Courts must presume that an arbitral award is enforceable under the Federal Arbitration Act. This means that, absent proof of egregious events in the arbitration, such as partiality or corruption among the arbitrators, arbitrator misconduct that prejudices any party, and arbitrators exceeding their powers, arbitration awards are generally upheld.

The franchisees claimed the arbitrator (a) engaged in misconduct by refusing to hear additional evidence, (b) was not impartial because he had a history of serving as an arbitrator for Choice Hotels, and (c) exceeded his powers by issuing an award later than anticipated. The court was unpersuaded by each of these arguments. The court noted that the franchisees had an equal opportunity to present their case, consented to the arbitrator after learning he had previously served as arbitrator for Choice Hotels in multiple arbitration proceedings, and the parties’ arbitration agreement was silent on a deadline for issuing an award.

Although the franchisees argued that the arbitrator refused to permit the franchisees’ presentation of additional evidence, the court noted that an arbitrator is only required to provide the parties with an adequate opportunity to present their case. An arbitrator is not required to permit parties to present any and all evidence they wish. The franchisees were also permitted to question the arbitrator regarding his prior relationship with Choice Hotels, and did so.

The court noted that the franchisees submitted a series of questions that the arbitrator responded to, and the franchisees ultimately did not object to the arbitrator. Finally, the court stated that an arbitrator exceeds his powers only if he acts outside the scope of his contractually delegated authority. Here, nothing in the parties’ contract imposed a deadline for issuing an award or any consequences for not adhering to an award deadline.

A common strategy for franchisees ordered into arbitration involves preparing to vacate the award if there are grounds to support that outcome at or before the evidentiary hearing. Franchisees should consult with franchise counsel to analyze possible avenues to challenge an arbitration award.

Choice Hotels Int’l, Inc. v. Jai Sai Baba, LLC, 2025 U.S.Dist.LEXIS 178479 (E.D. Pa. Sept. 11, 2025).