More Legal Insights on the Joint Employer Doctrine and California Franchises

With respect to the joint employer doctrine and California franchises, the US federal Ninth Circuit Court of Appeals recently gave McDonald’s Corporation a victory. See Salazar v. McDonald’s Corp., Case No. 17-15673 (US 9th Cir. October 1, 2019).

At issue were claims by McDonald’s employees that the parent corporation (the franchisor) was responsible for alleged violations of federal and California wage and hour laws made by the individual McDonald’s restaurants (the franchisees). This is an important case that provides a bit of a “legal road map” for how franchisors can avoid legal liability under the joint employer doctrine. In essence, what the court held is that various actions by the franchisor were not indications of control over franchise employees, but rather enforcement and maintenance of “brand standards.” This is good news for franchisers here in California.

Under California law, there are three methods of attempting to prove the joint employer doctrine. If proven, then both, or either, employer may be held liable for any violation of federal or California labor laws. This might include failure to pay overtime or minimum wages or failure to give proper rest breaks, etc. The three methods of proving the joint employer doctrine are:

  • A purported employer exercises sufficient control over the workers with respect to issues like wages, hours, working conditions, etc.
  • A purported employer “suffers or permits” the work done by the workers
  • A purported employer “engages” the workers creating a common law employer-employee relationship

At the trial level, the US District Court held that none of these tests were satisfied and that the parent corporation was not a joint employer. In the case linked above, the Ninth Circuit affirmed by a two-to-one majority. The court identified the following important facts:

  • The franchisee advertised for its employees, conducted the interviews, and hired the employees — that is, the franchisor was not involved in hiring
  • All training was done by the franchisee
  • Wages were paid by the franchisee from the franchisee’s bank account
  • Schedules are set and monitored by the franchisee
  • All supervision, discipline, and firings are done by the franchisee
  • The franchisor did require franchise employees to wear standard uniforms and to keep those uniforms “clean and neat”
  • With respect to sales, the franchisor did require its franchisees to use various computer systems, apps, and programs provided by and maintained by the franchisor for daily sales
  • By contrast, with respect to hours and scheduling, the franchisor did not require use of various computer systems, programs, and apps made available for scheduling, timekeeping, and determining regular and overtime pay for franchisee employees; these programs and systems were available and maintained by the franchisor, the franchisor encouraged use of these systems, but they did not require use
  • The franchisor did train franchisee managers and require a franchisor-trained manager to be on duty for each shift

Despite some factors that might seem like “control” factors, taken together, the court held that these facts showed that the parent corporation was not exercising control over the workers, but was focused on maintaining quality control and maintaining a franchise-wide consistent use of the various McDonald’s brands. Since McDonald’s actions were focused on “quality control and marketing standards,” there was no basis for imposing joint employer liability for the alleged labor law violations.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law.  Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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