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McDonald’s Makes Legal Settlement with Franchise Employees

The question of whether or not a franchisor is a joint employer of the workers at a franchisee’s location was at the heart of a class action lawsuit in California. In the federal case, the judge ruled that a franchisor could be held accountable for the misdeeds of its franchisee.

Dollar and paragraph sign on a brass scale , 3d illustration

The complaint was filed in a federal court in San Francisco in 2014. Plaintiffs were a group of current and former employees at McDonald’s restaurants in the Bay Area. All of the restaurants were owned by a franchisee, which is known as The Edward J. Smith and Valerie S. Smith Family Limited Partnership. Workers leveled charges at the franchisee for violating California wage and hour laws. These allegations included consistent errors in payroll calculations, failure to pay overtime, not providing rest breaks and meal periods and neglecting to reimburse workers for the time they spent keeping their uniforms clean and ready to wear.

Along with the wage and hours issues, the lawsuit also questioned whether or not the McDonald’s corporation was a joint employer with the Smith partnership. The corporation ultimately agreed to a $3.75 million settlement, but maintains that it is not a joint employer with its franchisees. Instead, they agreed to the settlement in order to avoid the ongoing costs and disruptions of lengthy litigation.

Workers hail the settlement as a major victory that may allow other parent corporations to be held responsible for the actions of a franchisee. However, business owners take a grim view of the development. They are concerned that a trend toward holding parent corporations responsible for the actions or misdeeds of franchisees may be detrimental to entrepreneurism.

At this time, the National Labor Relations Board is making similar arguments that McDonald’s should be considered a joint employer in a worker retaliation case in New York. If this case receives similar treatment, then it may establish a precedent for holding parent corporations responsible as joint employers.

Whether you are a franchisor or a franchisee, it’s vital that you seek legal counsel so that you are aware of your rights and responsibilities as an employer.