Employees of eight McDonald’s franchises in California sued McDonald’s and the franchisee that owned the eight franchised locations for alleged failure to pay overtime and provide required meal and rest breaks. McDonald’s was sued on a joint employer liability theory.  The workers argued that McDonald’s was a joint employer under California law, owed them a duty of care, and did not properly supervise the franchisee’s managers to prevent the alleged employment violations. The Ninth Circuit affirmed a lower court’s ruling that McDonald’s is not an employer of its franchisees’ employees and was not liable for the franchisee’s alleged employment law violations.

Not an employer
California provides three alternative definitions of “employer.” A company is an employer in California if it (1) exercises control over wages, hours or working conditions of workers; (2) suffers or permits work; or (3) engage with the workers, thereby creating a common law relationship. Mc Donald’s didn’t fit the bill under any of these definitions.

Insufficient control
McDonald’s did not exercise control over the franchisee’s workers.  The control exercised by McDonald’s was geared toward quality control.  The Ninth Circuit held that this exercise of control “is central to modern franchising and to the company’s ability to maintain brand standards, but does not represent control over wages, hours, or working conditions.”

Suffer or permit
Nor was McDonald’s an employer under the definition of “suffer or permit.” The workers had asserted that McDonald’s was their employer because it induced the franchisee to use its corporate in-store computer system and discouraged any adaptation to the systems geared toward compliance with California’s wages and hour laws.  The court noted that the workers improperly focused on responsibility for the alleged violations rather than focusing on the “responsibility of the fact of employment itself,” which is what is required to “suffer or permit.”  McDonald’s did not have knowledge of an individual’s work or the employee to prevent them from working, so it did not “suffer or permit.”

No common law employment
The third definition of employer looks to “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  A franchisor has an employment relationship with a franchisee employee’s, for liability purposes, “only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”  McDonald’s did not have the requisite level of control sufficient to create liability as a joint employer.

Recommendations
This is a significant decision and important victory for franchisors throughout the United States facing individual or class action claims alleging joint employment by the employees of their franchisees. Based upon the decision, franchisors may impose quality control and brand maintenance standards upon its franchisees without becoming a joint employer of that franchisee’s employees. The Court agreed with McDonald’s that a franchisor does not control the workplace, is not a joint employer, and is not generally responsible for a franchisee’s employment practices by imposing such reasonable standards. However, franchisors but must be cautious and prudent to ensure that the level of control exercised does not create a joint employment relationship with the franchisee’s employees.

We encourage franchisors that have specific questions about potential joint employer liability or other employment or franchising issues to contact us.