Restaurant not responsible for wage violations of franchises

The 9th U.S. Circuit Court of Appeals affirmed a lower court's decision Tuesday that McDonald's Corp. is not responsible for wage-and-hour violations committed by a restaurant franchisee.

The three-judge panel held the company had no control over employees who worked at several Bay Area McDonald's franchises operated by the Haynes Family Limited Partnership. Because of that, McDonald's was not liable in the class action brought by restaurant workers back in 2014 alleging they were denied overtime premiums, meal and rest breaks and other violations, according to the ruling.

"Factually, we disagree with many of the panel's conclusions," said plaintiff's lawyer Michael Rubin of Altshuler Berzon LLP in San Francisco. "If the 9th Circuit is right in its characterization, tens of millions of California workers will wake up to find fewer protections than they reasonably believed existed."

Fred W. Alvarez, a partner with Coblentz Patch Duffy & Bass, LLP in San Francisco representing McDonald's, did not immediately return calls seeking comment Tuesday.

In 2017, U.S. District Judge Richard Seeborg of San Francisco granted McDonald's summary judgment, ruling the restaurant chain did not meet the standards of an employer under California Labor Code, a view Judge Susan P. Graber affirmed in her opinion. Salazar v. McDonald's Corp., 2019 DJDAR 9415 (9th Cir., filed Oct. 1, 2019).

"The district court properly ruled that McDonald's is not an employer under the 'control' definition, which requires 'control over the wages, hours or working conditions,'" Graber wrote. "McDonald's does not retain 'a general right of control' over 'day-to-day aspects' of work at the franchise."

That distinction is key to all of the plaintiff's remaining claims, Graber wrote. The panel also affirmed the lower court's decision on claims McDonald's was a "joint employer" because it knew of the franchisee's use of the restaurant's "In-Store Processing" timekeeping and scheduling software, which did not recognize additional hours as overtime or schedule meal and rest breaks, a violation of California law.

Citing Martinez v. Combs, a 2010 state Supreme Court decision that held strawberry farmers liable for labor violations against seasonal workers rather than the produce merchants who heavily influence the industry, Graber affirmed McDonald's was not responsible because the company did not have "the power to prevent plaintiffs from working."

Graber further noted the franchisees "had the exclusive power to hire and fire workers [and] set their wages and hours," she wrote, adding that a franchiser is only liable if it has control of "relevant day-to-day aspects," including hiring, direction, supervision and discipline. The Oakland-based Haynes franchisee group settled with the plaintiffs prior to the summary judgment, court records show.

Ultimately, any control McDonald's has over restaurant employees is limited "specifically toward quality control and brand management," Graber wrote, a conclusion Rubin refutes.

"Most of the violations were the result of the timekeeping software the franchisees had no ability to reject," Rubin said. "The way that software was programmed had nothing to do with McDonald's brand or quality control.

"They overlooked California law and saved themselves and their franchisees on labor costs by stripping employees of overtime and meal and hour breaks," he added. "That's a naked workplace violation."

Chief Judge Sidney R. Thomas sided with Rubin in his partial dissent, finding McDonald's was culpable in the wage-and-hour violations. He agreed the plaintiff's proved the franchisees were not only unable to reprogram to software to account for overtime and meal breaks but also received notices from McDonald's for not counting "proper meal and rest breaks," he wrote.

"Reasonable inferences can be drawn that McDonald's had the ability to prevent wage-and-hour violations caused by its ISP system settings yet failed to do so," Thomas wrote in his dissent. "In deciding whether summary judgment was appropriate, we must draw from all reasonable inferences."

The panel also affirmed the lower courts' dismissal of additional claims alleging negligence, ostensible agency and that McDonald's was an employer under California's definition of common law. They held the district court's dismissal of a representative claim under the Private Attorney General Act and denial of a class certification.

Rubin plans to file a request for en banc reconsideration shortly, he said.