The U.S. Court of Appeals for the Ninth Circuit ruled that McDonald’s is not a joint employer with a franchisee under the definitions found in California Wage Order 5-2001, as it did not have direct control over the store employees or “suffer or permit” them to work.
The McDonald’s corporation contracts with franchisees to license the company’s name, trademark and various business practices. In California, the Haynes Family Limited Partnership operates eight McDonald’s franchises in the Bay Area.
A group of workers at Haynes-operated McDonald’s franchises sued both Haynes and McDonald’s, alleging the defendants denied overtime premiums, meal and rest breaks, and other benefits in violation of California’s wage and hour statutes. The plaintiffs also alleged negligence and requested penalties under the Private Attorneys General Act. To support their claims against McDonald’s, the plaintiffs asserted that McDonald’s and Haynes are joint employers.
Haynes reached a settlement agreement with the plaintiffs, and McDonald’s filed a motion for summary judgment, arguing that it was not a joint employer with the franchisee. A district court agreed, and the plaintiffs appealed.
The Ninth Circuit affirmed, ruling that McDonald’s did not meet any of the possible definitions of an employer under California law.
Construing Wage Order 5-2001, the California Supreme Court has provided three alternative definitions for an employer: “(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law relationship.”
Haynes selects, interviews and hires employees for its franchises, training new employees and determining their wages, which are paid from the franchisees’ bank account, the court noted. Haynes sets employees’ schedules and monitors their time entries; it also supervises, disciplines and fires employees.
“Any direct control that McDonald’s asserts over franchisees’ workers is geared toward quality control,” the panel wrote. “McDonald’s does not retain ‘a general right of control’ over ‘day-to-day aspects’ of work at the franchises.”
As for the “suffer or permit” definition, the analysis focuses on responsibility for the fact of employment itself, the Ninth Circuit explained, not on responsibility for the alleged violations of wage and hour laws (for which the court found some evidence that McDonald’s could have prevented).
The panel also considered the “common law” definition of an employer, which involves a test of “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
“Here again, McDonald’s exercise of control over the means and manner of work performed at its franchises is geared specifically toward quality control and maintenance of brand standards,” the court wrote. “Thus, McDonald’s cannot be classified as an employer of its franchisees’ workers under the common law definition.”
While the court acknowledged evidence that McDonald’s was aware that Haynes was violating California’s wage and hour laws with respect to its employees, it stated “there is no evidence that McDonald’s had the requisite level of control over Plaintiffs’ employment to render it a joint employer under the principles set forth” in California law.
The panel made quick work of the plaintiffs’ theory of “ostensible agency.” Under Wage Order 5-2001, the term “agent” applies only to an entity that actually employs the worker or exercises control over the wages, hours or working conditions of the employee. As McDonald’s “does none of those things,” the court ruled that it could not be held liable for violations of the Wage Order under an ostensible agency theory.
Finally, the Ninth Circuit affirmed summary judgment on the plaintiffs’ negligence claims, finding the statutory remedies for wage and hour violations exclusive and that the plaintiffs could not establish McDonald’s owed them a duty.
One member of the panel dissented, arguing for a broader reading of the “suffer or permit” definition that would encompass McDonald’s purported knowledge of Haynes’ wage and hour violations.
To read the opinion in Salazar v. McDonald’s Corp., click here.
Why it matters: The Ninth Circuit opinion is a significant victory for McDonald’s, with the federal appellate panel concluding that the corporation did not meet any of the possible definitions of an employer under California law. Had the court reversed, McDonald’s—and other companies with similar franchise models—would have been exposed to serious liability.