McDonald's Corp. Settles Franchise Employment Case

McDonald's Corp. recently settled a case involving a claim that it was a joint employer along with one of its franchisees.

That settlement was announced on Oct. 31 and follows an interim ruling by a federal court that may provide practical guidance to franchisors. Under the settlement, McDonald's (the franchisor) is reported to have agreed to pay the employees $3.75 million to resolve the case.

“The McDonald's cases illustrate an important point that applies to franchisor-franchisee relationships generally, including in the car rental industry: franchisors should make sure that their franchisees take specific steps to ensure that their staff understands who is really their employer,” said Leslie Pujo, an attorney at Plave Koch PLC who specializes in vehicle rental law and franchise law. “For example, franchisees should not use the franchisor's trademarks in H.R. documents, including applications, pay stubs, pay checks, employment agreements, time cards, etc."

“It is also important to keep in mind that the same principles could be applied to other independent contractor situations, such as RAC hiring of contract workers to wash or service cars, provide temporary assistance during busy seasons, or work on special projects," added Pujo.

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. 3d 1228, 1239-40 (N.D. Cal. 2015) (emphasis added).

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