Category Archives: Joint Employer Liability

Separate Franchise or Joint Employer? – The Ninth Circuit rules in favor of McDonald’s NOT being a Joint Employer of its Franchisee’s Employees

Contributed by Mike Wong, October 3, 2019

gavel on white background

The Ninth Circuit U.S. Court of Appeals ruled in a California lawsuit that one of the most recognized franchises, McDonald’s, does not exert sufficient direction or control over its franchisees’ employees to be considered a joint employer under California statutory or common law and therefore is not liable for how the franchisee treats its employees.

In doing so, the Ninth Circuit affirmed the District Court’s ruling that McDonald’s was not an employer under California’s Labor Code definition under the “control” definition, the “suffer or permit” definition or under California common law. The court also rejected the Plaintiffs’ claims that McDonald’s could be held liable under an ostensible-agency theory or that McDonald’s owed the employees a duty of care.

In this case, Plaintiffs argued that McDonald’s requirements of the franchisee made it a joint employer. Specifically, Plaintiffs argued that McDonald’s exerted control through the franchise agreement that required the franchisee to use its point of sale (POS) system and in-store process (ISP) computer systems every day to open and close each location, managers received training at McDonald’s Hamburger University and then trained employees on meal and rest break policies, required franchisee employees to wear uniforms, and the franchisee voluntarily used McDonald’s computer system for scheduling, timekeeping and determining overtime pay.

The court followed the California Supreme Court’s rational in Martinez v. Combs 231 P.3d 259 (Cal. 2010) and held that a franchisor “becomes potentially liable for actions of the franchisee’s employees, 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 franchisee’s employees.” Patterson v. Domino’s Pizza, LLC, 333 P.3d 723, 725 (Cal. 2014). It further held that McDonald’s is not an employer under the “control” definition, as it did not have “control over the wages, hours or working conditions.” Martinez, 231 P.3d at 277. Much like in Martinez, the court found that directing control over workers geared towards quality control, does not rise to the level of controlling the day-to-day work at the franchise. Id. In essence, branding does not represent control over wages, hours or working conditions.

The court also held that McDonald’s was not an employer under the “suffer or permit” definition because it did not have any power to prevent the employees from working by hiring or firing them, directing them where to work, or setting their wages and hours.

The court further found that although there was evidence suggesting that McDonald’s was aware that the franchisee was violating California’s wage and hour laws, there was no evidence that McDonald’s had the requisite level of control over the employees’ employment to render it a joint employer. 

This is a major win for franchisors and employers, considering the influx of cases alleging franchisors are “joint employers” of their franchisees’ employees. It should be noted that this win may be short lived as the U.S. Department of Labor is working to modify or update its definition of when a franchisor is considered a joint or partial employer of its franchisee’s employees.

Additionally, this case must be viewed in context of the U.S. District Court of New Jersey’s recent decision in Michalak v. ServPro Industries, Inc., where the court held that the Plaintiff’s allegations that ServPro “issued manuals, training materials and other writings” specifying policies and procedures for hiring, training, disciplining and firing employees were sufficient to establish an agency relationship and avoid dismissal at the motion to dismiss stage. The court further held that the Plaintiff’s allegations that she informed ServPro and that ServPro tipped off the franchisee and buried the complaint, was sufficient to support a claim that ServPro had aided and abetted discriminatory conduct in violation of New Jersey law. 

When making the leap to becoming a franchisor or selling franchisees it is important to understand how much direction or control is too much and what actions or requirements could open you up to liability for the actions of your franchisee. As such, it is vitally important that franchisors team with knowledgeable labor and employment counsel that can keep them up to date on the evolving risk of being a joint employer or having an agency relationship with their franchisees.

Employer May Be Held Liable For Employing Murderer!

Contributed by Noah A. Frank, July 27, 2017

Claims of negligent hiring, training, and retention is alive and well. Employers must be prepared to investigate, and fully remediate supervisors’ misconduct.

code of conduct

Recently, the Seventh Circuit Court of Appeals (Illinois, Wisconsin, Indiana) held that an employer may be liable for intentional acts committed by supervisory employees against other employees outside of work if the employer has been negligent. The tragic case, Anicich v. Home Depot USA, Inc., 852 F. 3d 643 (7th Cir. 2017), arose from the death and rape of a pregnant employee at the hands of her supervisor.

Background

Home Depot and its garden centers subcontractors (together, the “Employer”) jointly employed Brian Cooper as a regional manager. The victim’s estate alleged the employer knew Cooper had a history of sexually harassing, verbally abusing, and physically intimidating female subordinates, which included making crude and lewd comments, yelling and swearing at them, rubbing against them, controlling their conduct by pressuring them into spending time with him alone, and even throwing things.

The supervisor’s mistreatment of one subordinate, Alisha Bromfield, began in 2006 when she started working for the employer seasonally as a teenager. Cooper fixated his attention on her, calling her his “girlfriend” at work and repeating the above misconduct with her. Senior management, aware of Bromfield’s repeated complaints, failed to take reasonable steps to protect Bromfield, ensure that Cooper completed mandated anger management training or remove his supervisory duties. This ended in tragedy.

In 2012, when Bromfield was 7 months pregnant, Cooper threatened her. Using his supervisory authority, he demanded that she attend an out-of-town wedding with him, telling her he would fire her or reduce her hours if she refused. Bromfield acquiesced, but denied Cooper’s recurring demand to “be in a relationship.” After the wedding, Cooper murdered Bromfield, and then raped her corpse.

The Court held that employers have a duty to act reasonably in hiring, supervising, and retaining their employees, and that this was part of a broader trend toward recognizing employer liability for supervisors’ intentional torts committed outside the scope of employment – even where the harm caused was wholly disproportionate to more predictable harms (e.g., murder/rape versus continued sexual harassment, emotional/mental trauma). Because Cooper was alleged to have abused the employer’s grant of supervisory authority over Bromfield, the employer could be vicariously liable for Cooper’s torts committed against Bromfield.

Employers’ Duty in Light of the Seventh Circuit Court Ruling

Anicich is instructive. Employers that fail to act to stop an employee’s abuse of supervisory authority could be held liable for even the most extreme and gruesome intentional tortious and criminal conduct.

As such, employers must protect their businesses, including the following minimum steps:

  • Understand the risks associated with subcontracting and joint employer relationships, including supervision and control;
  • Implement and train employees on anti-discrimination, harassment, and sexual harassment policies, including a published complaint/reporting procedure, and prohibiting retaliation;
  • Take seriously and investigate all reports and complaints – no matter how minor, and even for repeat complainants;
  • Remediate any issues – including stripping supervisory authority, mandating training, and transferring/terminating employees;
  • Prohibit and protect those involved from, retaliation;
  • Respect and comply with collective bargaining rights – and get the union’s buy-in when necessary; and
  • Seek the advice of and guidance from experienced employment counsel when issues arise to ensure legal compliance and implementation of best practices to mitigate exposure.

No Joint Employer Liability Found, Despite New NLRB Standard

Contributed by Beverly Alfon

A couple of months ago, we discussed the National Labor Relations Board’s (NLRB) startling decision in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015), in which it determined that a non-union company shared joint employer liability, under the National Labor Relations Act (NLRA), with a labor contractor at one of its recycling plants. The Board held that two or more entities are joint employers if each one possesses sufficient control over employee’s essential terms and conditions of employment. Employers were in an uproar over the decision because of the potential exposure it brings to the use of any subcontractor and the fact that it makes it more difficult for an employer to avoid union organization through the subcontracting of work.

In the first reported decision since Browning-Ferris, the Regional Director for NLRB Region 5 found that in Green JobWorks, LLC/ACECO, LLC, Case No. 05-RC-154596 (Oct. 21, 2015), the union failed to establish a joint employer relationship between a subcontractor and a staffing agency. So, what made the difference in this case? See the chart below. (Click here if chart does not appear) 

BAChart (2)

BOTTOM LINE:  Unlike the Browning-Ferris decision, the Regional Director’s decision in Green JobWorks, LLC is not binding in other cases and the union has a right to appeal it (and we’ll keep you posted). Nonetheless, the decision confirms that the specific terms of the parties’ agreement and their conduct under those terms will be scrutinized.  As we suggested before, now is the time to take action:

  • Analyze all written agreements between your organization and any third party. A user company’s reservation of rights as to contracted employees should be limited and specific. The agreement should clearly indicate that the servicing company maintains exclusive authority to hire, fire, discipline, etc. and the user company reserves no/minimal rights to influence or decide these matters.
  • Carefully evaluate supervisory functions and oversight in practice, training requirements and other day-to-day activities surrounding employee relations (of your own direct employees and 3rd party employees). Consider requiring on-site “lead workers” from the servicing company so that they are responsible for tracking contracted employee hours, determining breaks and removing poor performers. 
  • Determine whether your current business model needs to be tweaked or modified in light of these developments.