Business

McDonald’s Found Likely Liable For Franchise Theft Under Obscure Theory

McDonalds Logo: J Stone/shutterstock.com, Judge Gavel: Andrey_Popov/shutterstock.com

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Ted Goodman Reporter

A federal judge just ruled that McDonald’s may be liable in a franchisee’s wage theft case. Judge Richard Seeborg, an Obama appointee to the bench, said that the lawsuit against McDonald’s corporation can proceed under the “ostensible agency theory.”

Under the ostensible agency theory, an entity can be responsible for third party activities if the third party conducted itself in a manner that would give the appearance that the third party is an agent of the entity (in this case, McDonald’s is the entity, and its franchisees are the third party). If any person dealing with that third party reasonably believes that the third party was an agent to the entity, the entity can be held liable for the actions of said third party, even if the third party is an independent contractor or franchisee, and not a direct employee of the entity.

The theory is common in medical malpractice cases, where patients will attempt to hold hospitals accountable for the acts of independent contracting physicians. The idea is that patients often rely on the name of the institution (hospital), rather than individual physicians for care, and because in many cases, hospitals present independent physicians as a part of their hospital.

Large corporations have reduced their exposure to legal responsibilities and liability by structuring their businesses not as joint employers, but as a system of franchises and independent contractors. When a labor-related dispute pops up at a franchise, the corporations will argue that they are not in charge of employment arrangements, and that employment-related issues are the responsibility of the individual franchise.

The wage theft class-action lawsuit centers on three women who work in an Oakland, Calif., McDonald’s. Plaintiffs Guadalupe Salazar, Judith Zarate, and Genoveva Lopez are suing a couple who are franchisees of McDonald’s, and own eight restaurants, including the McDonald’s in which the three women work.

The plaintiffs argue evidence exists that McDonald’s presented itself in a manner that led the employee’s to reasonably believe franchisee owners were acting as an agent of McDonald’s corporation, even though they are independent franchise owners.

“Looking at the record, there is considerable evidence, albeit subject to dispute, that McDonalds caused plaintiffs reasonably to believe Haynes was acting as its agent,” Seeborg ruled.

Under California labor laws, Franchisors (McDonalds) can be held liable for employment violations if they appear to be the employer, but aren’t actually the employer. McDonald’s motion for summary judgement was denied by Seeborg who wrote that the plaintiffs believed that they worked for the franchisee and the franchisor, which would make McDonald’s potentially liable for the employment violation even though the franchisee did not legally work for McDonalds, they appeared to work for McDonalds.

The plaintiffs argued that McDonalds was responsible for the work conditions of its franchisee’s employees because McDonald’s corporation required its franchisees to use company software to determine employee hours. Seeborg would not go as far as to classify McDonalds as a “joint employer” because California law, “suggests the provision of such software does not convert a franchisor into a joint employer, even when the programs allegedly give rise to putative wage and hour violations.”

The plaintiffs hope to prevail at trial under the ostensible agency doctrine, and if they do not, they plan to appeal on the grounds that McDonalds is a joint employer with its franchisees.

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