McDonald’s Corp. has settled a class-action lawsuit with about 800 employees of franchised units in the San Francisco Bay Area—the first time the franchisor has paid for the employment actions of a licensee.
The settlement comes as the chain and other restaurant franchisors are fighting the National Labor Relations Board to preserve franchisees’ status as the sole employers of their staffs. The NLRB contends that franchisors are "joint employers" of franchisees’ workforces in some instances and are hence liable for the labor practices and policies of licensees. A redefinition of brand owners as joint employers could expose them to lawsuits and change relations with franchisees, a development direly feared by the franchise community.
If the presiding judge approves, the QSR behemoth will pay $3.75 million to settle allegations of poor labor practices by the franchisee of five California stores. The plaintiffs say their employer failed to pay overtime, track hours accurately, offer meal and rest breaks and reimburse employees for time spent cleaning uniforms. They would receive $1.75 million in back pay and damages, with $2 million going toward legal fees.
The settlement of the 2014 lawsuit comes amid a trial that will decide if McDonald’s is subject to joint employment liability, as the NLRB contends. A finding for the NLRB would validate the 2015 Browning-Ferris decision that widened the legal interpretation of coemployment. The potentially pivotal case could impact whether franchisors can be held accountable for working conditions in franchised restaurants.
In this case, a district judge ruled that McDonald’s was not a joint employer. However, the judge said the chain could still be liable, because the golden arches on paychecks, uniforms and training resources could have lead employees to believe they were working for the corporation—a legal concept known as ostensible agency.
As part of the settlement, McDonald’s will also train the franchisee on software geared to limit labor infractions. Corporate-mandated HR software is one of the reasons the NLRB has pointed to McDonald’s as a joint employer.
Terri Hickey, spokesperson for the chain, said in a statement that the corporation is not a joint employer of the plaintiffs. "We entered into this mutually acceptable resolution to avoid the costs and disruption associated with continued litigation," she said.
In another attack on the chain’s labor conditions, McDonald’s workers from 14 franchised stores and one corporate-owned unit filed sexual harassment charges against the chain with the U.S. Equal Employment Opportunity Commission in October.