In a case with potentially sweeping implications for franchise operators everywhere, the 9th U.S. Circuit Court of Appeals — arguably the most liberal in the country — sided today with corporate behemoth McDonald’s against employees claiming it was responsible for what its franchisees did on the wage-and-hour front, ruling that it was not a joint employer.
The case traces back several years to the Obama National Labor Relations Board (NLRB), which opined that McDonald’s and other corporate franchisers like it were joint employers with their franchisees, responsible for what those franchisees did vis-a-vis their employees. This official opinion thus turned on its head the longstanding understanding that a corporate entity must have “direct control” over its affiliates in wage-and-hour decisions to be held liable.
In Salazar v. McDonald’s Corp., employees had filed a class action alleging that they were denied overtime premiums, meal and rest breaks, and other benefits in violation of the California Labor Code. Plaintiff class members worked at franchises in the Bay Area operated by the Haynes Family Limited Partnership.
“Although there was arguably evidence suggesting that McDonald’s was aware that [the franchisee] was violating California’s wage-and-hour laws with respect to [the franchisee’s] employees,” the court wrote, “there was no evidence that McDonald’s had the requisite level of control over plaintiffs’ employment to render it a joint employer under applicable California precedents.”
The three-member panel hearing the appeal of a district court’s decision held that the district court had properly determined that McDonald’s was not an employer under the “control” definition, which requires control over the wages, hours, or working conditions. It also held that the corporation was not liable under the “suffer or permit to work” definition of the Fair Labor Standards Act (FLSA), nor was it liable under the common law definition of “employer.”
Both the Trump Department of Labor (DOL) and National Labor Relations Board (NLRB) have been struggling to issue rules overturning the previous administration’s definition of “indirect control,” and this court case should aid in that decision-making.
McDonald’s, however, is still embroiled in a federal lawsuit by franchisee employees who were demonstrating for a minimum wage of $15 an hour at their franchises and were fired. The corporation tried to settle, but an administrative law judge rejected the terms as insufficient.