"Should Franchisors be Concerned with the McDonald’s Wage Deal?"
McDonald’s Corp. recently agreed to pay $3.75 million to settle a lawsuit filed by workers of one of its franchisees. Stop the presses! Isn’t that the opposite of what McDonald’s should be doing? Isn’t McDonald’s a leading player in fighting the idea that it is a joint employer of franchisee’s workers? Let’s back up a moment.
In 2014, employees of a California McDonald’s franchise sued both the franchisee and McDonald’s Corp. for labor violations alleging that, as joint employers, the franchisee and McDonald’s had failed to pay overtime, keep accurate pay records and reimburse workers for time spent cleaning uniforms. In late 2015, the franchisee settled with the workers for $700,000, leaving McDonald’s Corp. as the lone defendant in the case. During the case, the court had ruled that McDonald’s was not a joint employer, but that McDonald’s could be liable under the doctrine of ostensible (or apparent) agency, under which the workers must prove that they reasonably believed McDonald’s was their employer because, for example, they wore McDonald’s uniforms, served McDonald’s food in McDonald’s packaging, and received paystubs and orientation materials marked with McDonald’s name and logo. Few franchisee employees have prevailed on similar apparent agency claims.
The case was set to go to trial this December and McDonald’s had vowed to fight. But it got cold feet, presumably spooked by the ostensible agency claim, and its official reasons were to “avoid the costs and disruption associated with continued litigation.” Clearly, McDonald’s wanted to avoid the risk that a California court might rule that it is a joint employer, even if under a sideways theory, when it decided to settle the case.
It is important to note that a settlement contract is just that—a contract between parties in a particular case. It is not binding as it relates to other litigation and is not an admission that McDonald’s views itself as a joint employer. Indeed, McDonald’s issued a formal statement indicating that it is not a joint employer of the franchisee’s workers. Notably, however, this is the first time that McDonald’s has agreed to pay money to resolve a class action brought by franchisee workers. McDonald’s obviously decided this was not the fight it wanted to pick, particularly in California, which is well-known for its uniquely strict employment laws.
Given this news, we do not suggest that franchisors run out and start paying claims alleged by franchisee workers simply because McDonald’s decided to settle this case. Of course, this does underscore what Quarles & Brady has been advising for some time now, which is that franchisors need to remove themselves and not exert authority over the training, hiring, firing, wages, hours, or other terms and conditions of employment for the employees of their franchisees. That way, if a franchisor does find itself facing a lawsuit brought by franchisee workers, it has strong defenses.