McDonald’s Corp. continues to insist it isn’t a joint employer of workers employed by franchise restaurants. Nonetheless, it agreed to pay nearly $4 million to settle a lawsuit over the labor law violations of a franchisee – and it’s a move that has many other large companies sitting uneasy.
Attorneys for 800 workers employed at five different restaurants owned by a single franchisee announced in a federal district court in California that the international fast-food chain, based in Illinois, would pay $1.75 million in back pay to the workers and $2 million in legal fees. The class action lawsuit alleged that McDonald’s, alongside its franchisee, Smith Family LP, was in violation of California labor laws for its:
- Failure to pay overtime;
- Failure to maintain accurate records;
- Failure to reimburse workers for time they spent cleaning their uniforms.
One of the reasons McDonald’s Corp. was in a precarious situation in this case was because it had – and continues to – keep a tight control over how franchisees handle certain elements of the business. But you can’t meddle in the details of some aspects and then turn around and say you don’t ensure the companies are abiding labor laws. That, at least, was the take of the National Labor Relations Board, which moved to treat McDonald’s as a joint employer.
Usually, franchisors can claim that because they had no control over the day-to-day business, they can’t be liable if franchisees don’t follow wage-and-hour statutes. But that wasn’t the case here, and it could result in other large firms taking a giant step back when it comes to the affairs of their franchisees.
The proposed settlement still requires court approval, but if and when it is given, that will be the end of this lawsuit that involves franchises in the San Francisco Bay Area. In addition to the payout, the company also has to make available to franchises free training on the use of its scheduling and time-keeping software and appropriate techniques.
It’s worth noting that this settlement affects only those parties in the case, so it isn’t binding on parties in other cases – most notably in the unfair labor practice claims before the NLRB. And while this case was being decided under the Fair Labor Standards Act, the matter before the NLRB will be weighed under the National Labor Relations Act.
Still, the outcome is likely to impact how companies conduct business with their franchises. They must understand that they assume liability when they get involved in or exert authority over matters that include:
- Other terms and conditions of employment
This is believed to be the first time this firm has entered into an employment lawsuit settlement with workers employed by a franchisee. It’s worth noting that the company agreed to pay more than the economic losses reportedly suffered by the workers, plus it agreed to implement a training program.
Of course, $4 million is a drop-in-the-bucket to a large company like McDonald’s, but it’s entirely possible the firm was hoping to avoid a court-ordered designation of the company as a joint employer, which could have opened the doors to even more litigation.
Contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside and Los Angeles. Call 949.375.4734.
McDonald’s Settles with Franchise Workers for $3.75 Million in Wage Theft Lawsuit, Nov. 3, 2016, By Laura Clawson, Daily Kos
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Hill v. Delaware North Co. Sportservice: Wage and Hour Disputes, Oct. 15, 2016, California Wage-and-Hour Lawyer Blog