March 30, 2026|Franchise Frontlines
March 30, 2026 | U.S. District Court for the Eastern District of Missouri | Magistrate Judge Patricia L. Cohen | Unpublished Opinions
Executive Summary
In two coordinated rulings issued the same day, the Eastern District of Missouri denied motions to dismiss brought by an individual executive and a professional employer organization (“PEO”) in an Equal Pay Act case, holding that the plaintiff plausibly alleged both could qualify as “employers” under the Fair Labor Standards Act framework. The plaintiff alleged that she was paid less than similarly situated male employees and that she faced retaliation after raising compensation concerns. The defendants argued that neither the individual executive nor the PEO qualified as her employer as a matter of law. The court rejected those arguments at the pleading stage, emphasizing that the “economic reality” test focuses on actual control over compensation and working conditions, and that joint employer status is a fact-intensive inquiry not typically resolved on a motion to dismiss. The decisions reinforce that multiple entities—and even individuals—may face liability where they exercise meaningful control over employment decisions.
Relevant Background
The plaintiff served as Director of Technical Service and Support for a company providing election technology services. In that role, she managed a technical team responsible for supporting clients during elections and alleged that she consistently performed at a high level.
The complaint alleged that, despite comparable or superior performance, the plaintiff received lower compensation than male peers and subordinates performing substantially similar work. The disparity allegedly manifested in both salary and bonus structures, including reduced bonuses and delayed or denied salary increases.
The plaintiff further alleged that after raising concerns regarding pay inequity, she experienced a series of adverse actions, including reduced responsibilities, exclusion from key processes, and diminished professional opportunities. She ultimately resigned, asserting constructive discharge.
Two additional layers of potential liability were at issue. First, the plaintiff alleged that a senior executive exercised direct control over compensation decisions, including bonuses and salary approvals. Second, the plaintiff alleged that a PEO, which provided payroll and human resources services and designated itself as a “co-employer,” played a role in the employment relationship by issuing paychecks and implementing employment policies.
Both the executive and the PEO moved to dismiss, arguing that they did not qualify as the plaintiff’s employer.
Decision
The court denied both motions, focusing on the breadth of the definition of “employer” under the Fair Labor Standards Act and Equal Pay Act and the central role of control in that analysis.
With respect to the individual executive, the court held that the plaintiff plausibly alleged that he functioned as an employer based on his authority over compensation decisions. The complaint alleged that the executive directly reviewed and adjusted bonus determinations, approved or denied salary increases, and exercised ultimate decision-making authority within the company. These allegations were sufficient to support an inference that he acted “directly or indirectly in the interest of an employer” with respect to the plaintiff’s employment.
The court emphasized that individual liability under the statute is not limited to formal titles or corporate structure. Instead, the inquiry turns on whether the individual exercised operational control over significant aspects of the employment relationship, particularly compensation and working conditions.
Turning to the PEO, the court likewise declined to dismiss the claims at the pleading stage. The complaint alleged that the PEO designated itself as a co-employer, issued the plaintiff’s paychecks, and maintained policies governing workplace conduct, including anti-discrimination and retaliation provisions. The court concluded that these allegations, taken together, were sufficient to raise a plausible inference of joint employer status.
Importantly, the court emphasized that the “economic reality” test is inherently fact-intensive and requires consideration of the totality of the circumstances. The presence or absence of formal contractual labels—such as “co-employer”—was not dispositive. Instead, the court focused on whether the entity exercised meaningful control over the plaintiff’s employment.
The court also noted that joint employer determinations are rarely appropriate for resolution on a motion to dismiss, given the need for a developed factual record. As a result, the claims against both the executive and the PEO were permitted to proceed to discovery.
Looking Forward
These coordinated rulings provide a useful illustration of how courts approach multi-entity employment structures and reinforce a consistent theme: liability follows control, not labels.
For franchisors and system operators, the analysis underscores the importance of understanding how operational authority is exercised across a system. While formal agreements may define roles and responsibilities, courts will evaluate how decisions are actually made in practice—particularly with respect to compensation, discipline, and day-to-day operations.
The court’s willingness to consider individual liability is particularly notable. Where executives or system-level decision-makers exercise direct control over compensation or employment conditions, they may be drawn into litigation alongside the entity itself. This has practical implications for how authority is structured and documented within an organization.
The treatment of the PEO relationship is equally significant. As more systems rely on third-party platforms for payroll, human resources, and compliance functions, questions regarding joint employer status are likely to become more frequent. This decision reflects a cautious approach at the pleading stage, allowing claims to proceed where the alleged facts suggest potential control, while reserving ultimate determinations for a more developed record.
At the same time, the decision does not establish that all multi-entity arrangements create liability. The court repeatedly emphasized the fact-specific nature of the inquiry and the need to tie alleged control to the terms and conditions of employment. Generalized allegations or mere contractual labels will not be sufficient at later stages of litigation.
From a franchise perspective, the case reinforces the importance of carefully calibrating system controls. While consistency and oversight remain critical to brand integrity, the manner in which those controls are implemented—and who exercises them—may influence how courts evaluate potential exposure across the system.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
