DLA Piper Franchise partners Barry Heller, John Verhey and John Hughes recently conducted a webinar reviewing 2016's top franchise decisions. Two particularly stand out.
Ochoa v. McDonald's Corp
Joint employer and employee misclassification claims remained hot in franchising throughout 2016. In Ochoa v. McDonald's Corp.,1 the US District Court for the Northern District of California certified a class of more than 800 current and former employees of a McDonald's franchisee to pursue wage, overtime, meal period and rest break, maintenance-of-uniform, and wage statement claims against McDonald's and an affiliate. In September 2015, the court had entered summary judgment in favor of McDonald's on direct liability as a joint employer, but held that there were issues of fact regarding whether McDonald's might be indirectly liable as a joint employer if the franchisee was its ostensible agent.
In opposing the plaintiffs' motion to certify a class, McDonald's argued ostensible agency is incapable of being determined on a class-wide basis because it involves individualized questions of personal belief and reasonable reliance. The court rejected this argument, finding plaintiffs had tendered "substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis," including that plaintiffs were required to wear McDonald's uniforms; packaged food in McDonald's boxes; received paystubs, orientation materials, schedules and time punch reports all marked with the McDonald's name and logo; applied for a job through the McDonald's website; and "spent every work day in a restaurant heavily branded with [the] McDonald's trademarks and name." This evidence, said the court, was sufficient to support the inference that class members reasonably believed the franchisee was an agent of McDonald's.
In July 2016, McDonald's filed for leave to appeal the decision to the Ninth Circuit, arguing that the district court's reliance on "ubiquitous features of every franchise arrangement" could lead to every class properly certified against an individual franchisee being "automatically" certified against the franchisor. McDonald's eventually settled the lawsuit for $3.75 million. Notably, on January 5, 2017, the Northern District of California refused to certify similar ostensible agency claims brought against McDonald's in Salazar v. McDonald's Corp.,2 holding that while there is no general bar to certifying claims involving ostensible agency theories, the experience of the putative class members was too varied.
Williams v. Jani-King of Philadelphia, Inc.
In Williams v. Jani-King of Philadelphia, Inc.,3 a sharply divided 2-1 decision, the Third Circuit Court of Appeals affirmed the grant of class certification against commercial cleaning franchisor Jani-King in a case alleging franchisees were misclassified under Pennsylvania law as independent contractors rather than Jani-King employees. The court identified a multifactor test for assessing classification and said that, under this test, the "paramount" factor was the right to control the manner in which the work is accomplished, with the right to control being more significant than actual control. The Third Circuit held that documentary evidence alone could be sufficient to resolve the multifactor employment status test and ruled that the franchisee classification issues were susceptible to class-wide determination through common evidence. The plaintiffs pointed to specific provisions in the franchise agreement and manuals to show Jani-King had the ability to control the manner in which franchisees perform their day-to-day tasks.
The Third Circuit refused to reach the merits of whether the controls in the franchise agreement and manuals made Jani-King the employer of its franchisees. The dissent strongly disagreed, stating that "[f]ranchising constitutes a bedrock of the American economy" and that the "the majority's opinion threatens the viability of this basic economic bedrock." The dissent said the majority's opinion could lead to class action litigation against other franchisors and could be cited to support the proposition that franchise system controls may themselves give rise to an employer-employee relationship.
Jani-King's petition for rehearing and rehearing en banc was denied.