Labor & Employment Law Daily McDonald’s not liable for allegedly discriminatory conduct of franchisee manager
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Thursday, March 26, 2020

McDonald’s not liable for allegedly discriminatory conduct of franchisee manager

By Nicholas Kaster, J.D.

Conclusory allegations that the franchisor controlled and maintained the right to terminate franchisee employees were insufficient to hold it liable as a joint employer.

A federal court in Colorado dismissed a discrimination suit against McDonald’s Corp. and McDonald’s USA arising from the actions of the manager of a franchisee-operated McDonald’s restaurant. The suit, brought by two restaurant patrons, failed to show that the franchisor maintained the right to terminate franchisee employees such as the manager, and failed to show that the franchisor maintained control of the franchisee’s records. The court also dismissed state claims of assault and battery, intentional infliction of emotional distress, and negligence (Chavez v. McDonald’s Corp., March 20, 2020, Brimmer, P.).

Altercation with restaurant patrons. The case arose from an altercation that occurred in a McDonald’s restaurant located in Englewood, Colorado. This particular McDonald’s was operated by Ultra Mac, a franchisee of McDonald’s USA. The altercation occurred between two patrons and the manager of the restaurant and ended up involving the local police and resulted in the manager receiving a citation for disorderly conduct.

Discrimination and tort claims. The patrons brought claims against the franchisor for race and color discrimination in violation of 42 U.S.C. § 1981 and sought exemplary damages pursuant to that section, as well as state-law claims of assault and battery, intentional infliction of emotional distress, and negligent hiring, training, and supervision. The franchisor moved to dismiss, arguing that the patrons failed to allege facts demonstrating that the manager had any apparent or actual authority from the franchisor. The patrons contended that, based on the uniform branding and marketing that they found at Ultra Mac, there were sufficient facts to allege apparent authority.

Apparent authority irrelevant. The parties focused on whether the manager had actual or apparent authority; however, the court found that focus was misplaced. In an action under § 1981, courts do not consider whether a particular employee had actual or apparent common-law authority to act for a particular entity. Rather, the proper inquiry for a § 1981 claim, said the court, is whether that entity is considered an “employer” of the employee and thus can be held liable for the actions of that employee.

No corporate involvement. Although the Tenth Circuit had not addressed this issue, courts have held that an entity alleged to be an employer must actually participate in the allegedly discriminatory action to be liable under § 1981. Here, it was undisputed that the two McDonald’s corporate entities had no involvement in the altercation between the patrons and the manager giving rise to the claim. However, because the Tenth Circuit has not addressed the issue of whether employers under § 1981 must have personal involvement, the court analyzed whether McDonald’s Corp. and McDonald’s USA were employers of the manager.

Joint employer analysis. The joint employer test was the most appropriate, said the court, because the two corporate entities and Ultra Mac are separate entities. Two entities will be considered joint employers if they share or codetermine those matters governing the essential terms and conditions of employment. Both entities are employers if they both exercise significant control over the same employees.

In analyzing whether an employment relationship existed, the court looked to three factors: (1) whether the franchisor had the ability to terminate the manager; (2) whether the franchisor had control over Ultra Mac’s records, including payroll, insurances, taxes and the like; and (3) whether the franchisor had any control over “day-to-day supervision of employees, including employee discipline.”

First, the court addressed the most important factor, the right to terminate. The suit alleged that both McDonald’s Corp. and McDonald’s USA controlled and operated the franchised restaurant, but offered no further details. As a result, the court was not required to accept the allegations. However, even accepting these allegations as true, the court found them to be insufficient. The complaint did not allege that McDonald’s Corp. or McDonald’s USA maintained the right to terminate Ultra Mac employees such as the manager. The suit must allege more than that the two corporations controlled the Ultra Mac McDonald’s “operations,” said the court.

Second, the court found that the complaint failed to allege that the franchisor maintained any control over Ultra Mac records, such as payroll, taxes, or insurance.

Finally, the court concluded that the allegations that the two corporations exercised control over day-to-day operations of Ultra Mac, including control over branding, greetings, and uniforms, were conclusory. Moreover, said the court, uniformity in branding, greetings, and uniforms was insufficient to demonstrate that the two corporations were employers of the manager. In addition, the fielding of complaints was not enough to conclude that the two corporations were employers of the manager.

In sum, the most important factor, the right to terminate, weighed in favor of McDonald’s Corp. and McDonald’s USA. Control over records also weighed in favor of the two corporations. Minimal control over employee supervision and discipline did not outweigh these two factors, said the court.

No joint employer liability. Accordingly, because the patrons failed to state a plausible claim under § 1981, the claim was dismissed as to McDonald’s Corporation and McDonald’s USA. Furthermore, since they failed to state a claim under § 1981, their claim for punitive damages deriving from their § 1981 claim was also dismissed. Thus, they could not be held liable under § 1981 for the actions of the franchisee’s manager.

State-law claims dismissed. Finally, with the dismissal of the federal claims, the court found no compelling reason to retain jurisdiction over the state law claims. Hence, the claims for assault and battery, intentional infliction of emotional distress, and negligence were similarly dismissed.

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