Ninth Circuit Holds McDonald’s Not Liable for Wage and Hour Violations of its Franchisee because It Did not control Franchisee’s Employees.

October 4, 2019

On October 1, 2019. the 9th Circuit affirmed summary judgment in favor of McDonald’s, the franchisor, stating that the company did not control the franchisee enough to be liable for the wage and hour claims brought by the franchisee’s employees. While it is under California law, it is significant as the concepts are similar. See Guadalupe Salazar, et. al. v. McDonald’s Corp., et. al.

Simply put, even though the franchisee used (on a voluntary basis) the franchisor’s suggested HR computer system, and even though the computer system caused a number of wage and hour violations, and even thought McDonald’s exercised quality control and brand control over the franchisee, including uniform requirements, the 9th Circuit agreed with the District Court that these facts were not enough to hold McDonald’s, as the franchisor, liable for the wage and hour violations of its franchisee. The Court relied heavily on the fact that the franchisee selected, interviewed, and hired its own employees, that it trained its own employees, that it set wages for its own employees and paid them from its own bank account, that it supervised, set schedules and monitored the time entries of its employees, and that it disciplined and fired its own employees. Given all that, the Court found McDonald’s did not sufficiently control the franchisee to become an “employer” or a “joint employer” under the California Labor Code.

Notably, the Court came to this conclusion notwithstanding McDonald’s significant involvement in quality control, branding and even in training to the extent permitted by the franchisee, and the Court rejected the theory that the franchisor should be liable merely because it “could have” stopped the wage and hour violation. In the end, the opinion and the result came down to the right, or lack thereof, of the franchisor to control the franchisee’s employees in their daily work.

So, even though it comes from California law, it should serve as a good general road map on how franchisors can avoid becoming liable for the wage and hour violations of their franchisees. Of course, federal law and the laws of the various states where one does business will ultimately control, but again, this approach would be worth considering when developing guidelines for dealing with franchisees in any organization.