AUTHOR: MUSKAN ALI, IIMT COLLEGE OF LAW, GREATER NOIDA

Growing trends of fast food gave rise to the establishment of franchises like KFC, dominos, McDonalds, etc. these not only gave ways to fast food but also acted as a source of income. As the numbers of people working for these outlets increase, workers related problems also arise and workers experience their rights being infringed. This violation gave rise to lawsuits and among them, one was Salazar v. McDonald Corp., (2019) 944 F.3d 1024 (9th Cir. 2019), where it was claimed by the workers that their rights are being infringed by the employer. 

Key words- Joint Employers liability, Ostensible agency 

McDonald’s contracts with franchises to license the McDonald’s name, trademark and various business practices and Haynes Family Limited Partnership (“Haynes”) was one among them where they have to pay fees to McDonald’s as agreement requires and to maintain franchise, they had to meet certain standards such as serving McDonald’s products.

Plaintiffs- Guadalupe Salazar, Genoveva Lopez and Judith Zarate worked at a Haynes-operated McDonald’s franchise restaurant in Oakland. They sued Haynes and McDonald’s on behalf of 1,400 workers, approximately, alleging that they have violated the California Labor Code’s wage-and-hour regulations as they were of the view that Haynes and McDonald’s are their joint employers.

The plaintiffs were working in a bay area, for Haynes, a McDonald’s franchise in Oakland. Haynes recruits, trains new employees and sets their wages, which is paid to them from Haynes’s bank account. Haynes used to control employee’s terms and conditions related to working hours and time entries and also monitors their behavioral conducts and take required action if there is a fault at employee's part. The McDonalds provides software to Haynes to manage operational aspects such as scheduling, payroll, and human resources functions, aiming to maintain uniformity in franchise operations. The day-to-day operations and functions were not in control of McDonalds but the plaintiffs claimed that because of the software the McDonalds was controlling every operation. 

In 2014, the plaintiffs brought a putative class action in the Northern District of California against both Haynes and McDonald’s, considering them ‘joint employer’ and holding McDonald liable under ostensible agency doctrine, and claiming violations of California Labor Code’s wage-and-hour regulations. They alleged that Haynes and McDonalds refused overtime pay, denied meal and rest breaks and mandated off-the-clock work.

1. CALIFORNIA LABOR CODE: It governs the wage-and-hour claims including the failure of mandated meal, minimum wage violations, unpaid overtime, etc.

The meal and rest break is covered under section 226.7, 1194 and 226

Wage payment and overtime is covered under section 510 and 1194.

2. CALIFORNIA WAGE ORDERS: California wage order no. 5-2001, Section-2(H). It was issued by the Industrial Welfare Commission (IWC) regarding working conditions, break and overtime within industries which also includes the restaurant section.

3. JOINT EMPLOYERS LIABILITY: The concept doesn’t have any specific provision but it is widely used to determine whether the franchisor is also responsible or not for any violation, caused by the franchise. Joint employer liability is a legal concept where two or more employers are liable for the violation of the rights of the same employees, usually when these employers have powers to control their operations and terms and conditions.

1. Can McDonalds be held liable under joint employer liability?

2. Has McDonalds violated the laws and rules mentioned under Californian Laws and Labour Codes?

1. SUIT FILED (2014)

Plaintiffs- Guadalupe Salazar, Genoveva Lopez and Judith Zarate, filed a suit against the franchise, the Haynes and the franchisor, McDonalds, as joint employer and alleging that worker’s rights have been violated guaranteed in California Labor Code’s wage-and-hour regulations. The lawsuit was filed in U.S. District Court for northern district court of California [No-cv-02096-RS].

2. PLAINTIFF’S SETTLEMENT WITH HAYNES (2017)

The plaintiff and Haynes, the franchise, made a class-wide settlement and addressed the claims against Haynes but the claims against the franchisor, McDonalds, were still pending.

3. MCDONALDS MOVE TO DISTRICT COURT FOR SUMMARY JUDGEMENT

McDonalds claimed that there was no joint employer liability as there was no control of McDonalds over the day-to-day operations of the franchise so they can't be held liable for the violations caused due to Haynes.

The district court granted McDonalds summary judgement and the court concluded that McDonalds control was limited in the operations of Haynes and only limited to the extent that they only inspect the brand value and quality standard. The court was of the belief that McDonalds’s control didn’t fulfill the criteria mentioned in the definition of ‘power’ under Californian law.

4. OTHER CLAIMS- INCLUDING OSTENSIBLE AGENCY

The district court rejected the claim of the plaintiff of PAGA and Ostensible Agency and rejected that there was an act of negligence on part of McDonalds. 

5. PLAINTIFF’S APPEAL IN NINTH CIRCUIT (2019)

Plaintiff appealed that the district court’s grant of summary judgement was a mistake and McDonalds is their employer. The plaintiff made following points to prove their claim:

1. McDonalds controls the operation through their software that controls uniformity, training procedure and operations.

2. McDonalds influences wages and working terms and conditions of workers.

3. McDonald's set rules for the functioning of the franchise. 

The ninth circuit had to find two answer to declare Haynes and McDonalds a joint employer:

1. Did McDonalds really control the franchise and worker’s daily operations?

2. Was McDonalds inducement in operations of franchise caused violation? 

3. NINTH CIRCUIT DECISION (OCTOBER 1, 2019)

It was declared that the decision of district court is not a fault and affirmed summary judgement in favor of McDonalds’s by a majority decision.

The McDonalds power of controlling doesn’t satisfy the definition of ‘power’ mentioned in California law. And it was also concluded that their control did not even the ‘suffer and permit’ definition either. The ninth circuit also dropped that claim of the ostensible agency of plaintiff, again rejecting the angle of joint liability.

The ruling was widely accepted in employment or franchise laws as it has reinforced limits on franchisor liability under Californian law. If the franchisor regulates the quality standard and has no control over day-to-day operations then the franchisor cannot be said as the employer. The ruling set limitations for classifying franchise and franchisor as joint employers and for deciding the condition when a liability can be called as joint employer liability. 

Beside the outcome which proves to be a boon for franchisors, it creates a problem for workers as it will be difficult for them to classify as to whom they call their employer and how is actually controlling their terms and condition of work and to what limits. Furthermore it would be hard for workers to prove that the franchisor has influenced their working terms and conditions which will make workers helpless whenever their rights will be infringed. 

The case gave a clear understanding of joint employer and joint employer liability by creating a standard for defining the limits and power of the franchisor to declare them the “employer”. The case was about the question of whether McDonalds was the employer or not. The court had focused on the definition of “power” under Californian law while reaching on some decision. This ruling made it easy for the cases to know about the impact of franchisor over the life of the workers who are working in the franchise.

Furthermore, the ruling made it easy for workers to avoid misunderstanding that franchisor is their employer and that they are also responsible whenever their rights are being infringed. This will avoid the risk factor for the franchisor that in future, due to the acts of the franchise employers, they would also face liability. 

The case affirmed that if the franchisor does not control the franchise’s day-to-day operations and does not set rules and regulation for the franchise functioning then it cannot be called as an employer and cannot be sued under “Joint Employers Liability”. The ruling made it clear that the control of the franchisor should satisfy the definition of “control” under Californian law to make a franchisor liable and since McDonalds was not controlling the franchise and its operation, neither directly nor indirectly, then they cannot be held liable for the violation occurred on franchise level. The ruling not only made it clear for the employers to know who are answerable to them but also made it easy for franchisors to expand their business without the fear of being sued for the acts of the franchise.

1. Salazar v. McDonald's Corp., (2019) 944 F.3d 1024 (9th Cir. 2019).

2. California Labor Code  § 226, 226.6, 1194.

3. California Wage Code  § 510, 1194

4. Salazar v. McDonald's Corp. (2019), available at https://cdn.ca9.uscourts.gov/datastore/opinions/2019/10/01/17-15673.pdf.