Tag Archives: Joint Employer

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.

NLRB Expanding Joint Employer Standard?

Contributed by Suzanne Newcomb

Maybe. Organizations representing a variety of business and labor interests accepted the NLRB’s invitation to weigh in on whether the board should reconsider its standard for determining when organizations are deemed “joint employers.” Teamsters Local 350 requested the NLRB review a decision which found Browning-Ferris and its subcontractor, Leadpoint (which provides employees to the Browning-Ferris facility), were not joint employers because Browning-Ferris did not share immediate and direct control over the terms and conditions of Leadpoint’s employees working at its facility. The board accepted review and also invited input from interested amici – entities not directly involved in the dispute but which have an interest in the outcome – on two very broad questions: “Should the board adhere to its existing joint-employer standard or adopt a new standard? What considerations should influence the board’s decision in this regard?” By inviting outside input the board signaled it is considering changing its stance on the issue.

A wide variety of organizations including the U.S. Chamber of Commerce, labor unions, the EEOC, and the NLRB’s own General Counsel filed briefs in advance of the June 26 deadline. The Chamber lauded stability and predictability in both business relationships and collective bargaining and warned that disrupting 30 years of established precedent would lead to uncertainty and insecurity and have “far-reaching and negative consequences.” Groups representing a wide variety of business interests cautioned that expanding the standard would burden companies with bargaining obligations for employees they do not directly control and unfairly expose them to liability for the acts of their suppliers and subcontractors.

The Teamsters and other groups representing the interests of organized labor pointed to an increase in the number of workers hired through staffing agencies and subcontractors and argued that the practice dilutes employees’ ability to collectively bargain. “The modern worker,” the Teamsters argue, “is awash in a sea of multi-layered and dependent relationships” and “bereft of meaningful resort to the protections and processes of the [National Labor Relations] Act.”

General Counsel for the NLRB joined organized labor and pressed for an expansion of the current joint employer standard arguing Congress intended a broad reading of the term “employer.” The EEOC urged the board to adopt the more all-encompassing standard it applies which looks to several factors, none of which is decisive: “who hires and fires, who assigns work, who controls daily activities, who furnishes equipment, where the work is performed, who pays the worker, who provides employee benefits, how the worker is treated for tax purposes and whether the worker and the putative employer believe that they are creating an employer-employee relationship” and omits the NLRB’s “immediate and direct” language.

Any significant change in the NLRB’s approach will have far reaching implications. SmithAmundsen’s labor and employment team will continue to monitor the situation and alert you to any change that could impact your business.