A federal appeals court on Tuesday ruled that McDonald’s does not exert enough control over its franchisees’ employees to be considered a joint employer and therefore is not liable for their treatment.
The 9th Circuit U.S. Court of Appeals agreed with a lower court decision from last year in ruling against arguments that McDonald’s is partially liable for violations of wage and hour laws.
The ruling hands McDonald’s a major victory in the ongoing dispute over its legal liability in the case, which has cast a cloud over the company and, to an extent, the franchising sector as a whole.
The lawsuit was first filed in California in 2014 by a group of McDonald’s employees who claimed that the Haynes Family Limited Partnership violated labor laws by not giving meals or breaks and not paying them for all the hours they worked.
The case against Haynes was settled, but the employees also targeted McDonald’s, arguing that the company exerted enough control over the franchisee and its operations to be partially held liable.
A majority of the three-judge panel in its ruling said that McDonald’s did not control the wages, hours or working conditions of the franchisee’s employees. It also said that California law holds that the franchisor cannot be classified as an employer.
The panel noted that there was “evidence suggesting that McDonald’s was aware” the operator was violating California wage and hour laws, but “there was no evidence that McDonald’s had the requisite level of control” over the workers’ employment “to render it a joint employer.”
“Throughout this process, McDonald’s has made clear that it is not and has never been a joint employer,” a McDonald's spokesperson said in a statement. “We’re pleased that the Appellate Court recognizes this and ruled in our favor.”
Fight for $15, a labor-backed group that has been pushing for higher wages and unions at quick-service restaurant chains, issued a statement from Maria Paez, a Bay Area McDonald’s employee.
“McDonald’s is yet again trying to use complicated legal arguments to escape responsibility for its workers, but these arguments don’t pass the test of common sense,” Paez said. “The fact is that McDonald’s controls everything from the menus to training, to our timekeeping system. When people see my uniform and order a Quarter Pounder at the counter, they know exactly who I work for: McDonald’s.”
The issue of whether franchisors could be considered a “joint employer” of their franchisees’ employees has hung over the industry for years since the Obama administration first tightened its joint-employer rules.
Labor advocates have argued that the definition is needed as more employees work for subcontractors or franchisees. Franchising advocates have argued that the joint employer classification would hamper the growth of companies using the business model.
The legal uncertainty, however, has not stopped companies from selling stores to franchisees—McDonald’s itself has sold hundreds of U.S. company-owned locations to franchisees in the five years since the lawsuit was first filed.
The U.S. Department of Labor is working to change its definition of when a franchisor could be considered a partial employer of its franchisees’ employees.
While franchising advocates favor the proposed regulations, at least 18 states have come out against the proposal, which features a four-part test that determines when franchisors could be considered liable for their franchisees’ employment practices. The states argue that the proposed definition isn’t sufficiently broad enough.
UPDATE: This story has been updated to include reaction from McDonald's and from Fight for $15.