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McDonald's Settles With Franchise Workers for $3.75 Million

By Casey C. Sullivan, Esq. on November 02, 2016 | Last updated on March 21, 2019

Workers at McDonald's franchises in California might soon have a reason to say "I'm lovin' it," now that the company has agreed to a pay out $3.75 million to settle a lawsuit against the world's largest fast food chain. The suit sought to hold McDonald's Corp. accountable, as a joint employer, for the alleged wage and hour violations of a Bay Area franchisee.

The settlement marks the first time McDonald's has agreed to pick up the tab for one of its franchisees, according to Reuters.

McDonald's Bay Area Franchises

A 2014 lawsuit accused McDonald's and its franchisee, Smith Family LP, of not paying workers proper overtime, not providing required breaks, and other labor violations. The suit sought to hold the McDonald's Corp. liable along with the franchisee, as a joint employer. A finding that McDonald's was a joint employer would leave the McDonald's Corporation on the hook for labor violations committed by its franchise owners. The company has over 14,000 restaurants in America, most of which are run by franchisees.

Last year, a federal court ruled in the case that McDonald's wasn't a joint employer, but still "opened a different path that could be used to hold McDonald's liable for the alleged labor violations of the franchise owner by allowing the workers to argue they believed the corporation was their employer," according to the Wall Street Journal.

Opening the Joint Employment Doors?

In 2014, the California Supreme Court ruled that companies needed to have a "comprehensive and immediate level of 'day-to-day' authority over matters such as hiring, firing, direction, supervision and discipline of the employee," in order to be vicariously liable for their franchises' labor violations. But federal law could be a bit less demanding.

The National Labor Relations Board now considers "indirect control" sufficient to establish one as a joint employer. McDonald's could wield such indirect control, for example, by giving its franchisees computer systems that are used to log hours and calculate overtime. Liability could also, as the judge in the Bay Area case determined, be established through an agency theory. If McDonald's franchise owners are "ostensible agents" of the corporation, then the national organization could be responsible for their alleged violations.

The burger chain's recent settlement means those questions won't be answered in the Bay Area case, but the company is still facing litigation based on similar theories. A case before the NLRB seeks to have McDonald's treated as a joint employer for union organizing, for example. Another is trying to have the corporation held liable for sexual harassment at its franchises.

McDonald's maintains, despite the settlement, that it's not a joint employer and is not "responsible for employees of its independent franchisees."

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