Employment Law Daily Jury to decide if McDonald’s liable for wage violations at franchise under ‘ostensible agency’ theory
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Friday, August 19, 2016

Jury to decide if McDonald’s liable for wage violations at franchise under ‘ostensible agency’ theory

By Dave Strausfeld, J.D. A jury could reasonably find McDonalds to be the joint employer of restaurant crew members who worked for the Haynes family’s eight McDonalds franchises and who allegedly were not paid all the wages they were due, held a federal district court in California on summary judgment. The employees claimed they believed both they and the Haynes worked for McDonalds. If they could establish an "ostensible agency" relationship—which would require showing, among other things, a reasonable belief McDonalds was their employer—McDonalds could be held jointly liable for the franchisee’s alleged violations of California wage laws (Salazar v. McDonald’s Corp., August 16, 2016, Seeborg, R.). Said they didn’t know they worked for a franchisee. Three crew members at McDonalds franchise restaurants in Oakland, California, brought this putative class action seeking to recover wages allegedly owed to them by the Haynes’ family business (Haynes) and by McDonalds as franchisor. Specifically, they alleged that managers required off-the-clock work, failed to pay mandated overtime, and committed other violations of California wage laws. Pointing out that only an "employer" can be held liable under these wage laws, McDonalds moved for summary judgment on the grounds it did not jointly employ the named plaintiffs, given it did not retain or exert direct or indirect control over their hiring, firing, wages, or working conditions. No true joint employment. The court agreed that McDonalds did not function as the crew members’ employer. Haynes alone possessed the power to hire and fire its workers, to set their wages and hours, and to tell them when and where to report to work, the evidence showed. While McDonalds could exert pressure on Haynes because it theoretically could withdraw its business, it could not directly or indirectly set wages, hire or fire, or regulate day-to-day working conditions. And being able to apply influence through a franchising relationship, standing alone, "simply is not enough to support vicarious liability." Ostensible agency? The crew members fared better on their ‘ostensible agency’ theory. Ostensible agency exists where (1) the person dealing with the agent does so with reasonable belief in the agent’s authority; (2) that belief is generated by some act or neglect of the principal sought to be charged, and (3) the relying party is not negligent. Looking at the record here, there was considerable evidence that McDonalds caused the crew members reasonably to believe Haynes was acting as its agent. To begin, the crew members uniformly declared they believed both they and Haynes worked for McDonalds. Further, they were required to wear McDonalds uniforms, prepare and serve McDonalds food in McDonalds packaging, and greet customers by saying "Welcome to McDonald’s." Their managers interacted regularly with McDonalds consultants, wore McDonalds uniforms, and referred to themselves as "working for McDonald’s." Also, the crew members received documents styled as "McDonald’s Store Policies. And nobody ever told them McDonalds was not their employer, they claimed. Some of them had applied for the job through a McDonalds website, and while the website apparently stated that the job was "with an independently owned and operated McDonald’s franchisee," such disclosures do not automatically defeat the reasonableness of an individual’s beliefs, courts have found. In sum, though it was "a close call," particularly as the crew members here were long-term Haynes employees, a jury could reasonably find McDonalds to be their joint employer by virtue of an ostensible agency relationship. McDonalds’ argument. Disputing this conclusion, McDonalds posed the question: How can uniforms, logos, and food packaging support ostensible agency, when, without more, they are insufficient to find "true agency," as the California Supreme Court recognized in Patterson v. Domino’s Pizza, LLC? "This argument is compelling," the court conceded, noting that Patterson said "uniform workplace standards" intended to protect the brand do not establish actual agency. Further bolstering McDonalds’ position, ostensible agency is generally applied in cases involving nonemployees, such as customers. "That distinction makes sense," the court admitted, because customers or other nonemployees have no other knowledge of the actual relationship between the franchisee and the franchisor. But all of that said, the court found "no authority foreclosing a finding of ostensible agency in the present context." Patterson expressly declined to address ostensible agency, and California courts permit an ostensible agency theory even when rejecting actual agency based on the same evidence. Accordingly, the crew members’ wage claims against McDonalds could proceed to trial under an ostensible agency theory, the court ruled.

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