McDonald’s Settles Claim by Franchisee’s Employees

You may have read the news reports that McDonald’s Corp. settled a case involving a claim that it was a joint employer along with one of its franchisees. That settlement was announced on October 31 and follows an interim ruling by a federal court that may provide practical guidance to franchisors. Here are the details:

  • McDonald’s USA, LLC and several affiliates were sued by employees of a franchisee that operates five California restaurants. The plaintiffs, who alleged various labor law violations, also sued the franchisee. The franchisee separately settled with the employees.
  • In September 2015, the franchisor won summary judgment on most grounds, including the claim that the franchisor was liable as a joint employer with its franchisee.
  • But in the same September 2015 ruling, the federal district court denied summary judgment to the franchisor on a key claim: whether the employees had reason to believe that they worked for the franchisor as well as their local franchisee, i.e., whether the franchisee was an “ostensible agent” of McDonald’s. The court relied on the facts that the employees “wear McDonald’s uniforms, serve McDonald’s food in McDonald’s packaging, receive paystubs and orientation materials marked with McDonald’s name and logo, and . . . applied for a job through McDonald’s website.” Ochoa v. McDonald’s Corp., 133 F. Supp. 2d 1228, 1239-40 (N.D. Cal. 2015). The court concluded that the issue had to be decided at trial, and could not be decided by a motion for summary judgement. In July 2016, the Court certified the class of employees of the franchisee so that the labor law claims against McDonald’s could proceed to trial.
  • In its July 2016 order, the court noted common aspects of the employees’ jobs that made their claim that McDonald’s could be liable for the acts of its franchisee as an ostensible agent suitable for resolution in a class action. Specifically, the court again highlighted the employees’ claims ”that they were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Ochoa v. McDonald’s Corp., No. 14-CV-02098-JD, 2016 WL 3648550, at *3 (N.D. Cal. July 7, 2016) (emphasis added).
  • On October 31, the settlement was announced. Under the settlement, McDonald’s (the franchisor) is reported to have agreed to pay the employees $3.75 million to resolve the case.
  • This private case is unrelated to the ongoing “joint employment” complaint that the NLRB’s General Counsel is litigating against McDonald’s within that agency.
  • In another recent decision – also involving McDonald’s and also from a federal district court in California – a court again granted summary judgment on labor law claims against McDonald’s as a joint employer with its franchisee but denied summary judgment on a claim that McDonald’s was liable for the franchisee as an ostensible agent. Salazar v. McDonald’s Corp., No. 14-CV-02096-RS, 2016 WL 4394165 (N.D. Cal. Aug. 16. 2016). That case remains pending, and may follow the same path as the Ochoa case.
  • The Ochoa case illustrates an important point: it’s critical to make clear to employees that they work for a local franchisee, and not for the franchisor. This is akin to making sure that guests appreciate that they are patronizing a local, independently-owned and operated location.
  • To this end, we have been recommending – and we believe that the court’s decisions in the Ochoa case and the Salazar case reinforce the point – that franchisors should make certain that their franchisees take specific steps to make sure that franchisees’ staff knows who is really their employer:
    • Franchisees should not incorporate the franchisor’s trademarks as part of the franchisee’s corporate name.
    • Franchisees should not use the franchisor’s trademarks in H.R. documents – which include applications, pay stubs, pay checks, employment agreements, time cards, etc.
    • Franchisees should post conspicuous notices in the back-of-the-house areas, just as they do in the guest-facing front-of-the-house areas, to explain who the franchisee is: for example, “Acme Restaurant Operations LLC, a proud local, independently-owned and operated franchise of [Franchisor].”

This is an area of operation in which there are practical lessons to be gleaned, and as to which careful attention to detail may yield significant beneficial results.