McDonald’s Corp. agreed to pay $3.75 million to settle a wage-and-hour lawsuit brought by employees at five franchisee-owned restaurants in the San Francisco Bay area, marking an important development in the company’s long-standing legal battle over whether it is a joint employer of franchise operations.
The court has not ruled that McDonald’s is a joint employer in this case; however, the settlement, which must be approved by a federal judge, marks the first time the company has settled legal claims by a group of workers at one of its franchises. Such a move could set the stage for new legal battles over its joint-employer status by prompting others to bring similar lawsuits against the company.
McDonald’s, one of the nation’s largest fast-food franchises, agreed Oct. 28 to pay $1.75 million for 800 fast-food workers and $2 million to cover legal fees and expenses, thereby ending a 2014 class action lawsuit brought by franchise employees alleging that McDonald’s and its franchisee Smith Family LP violated California law by failing to pay overtime and keep accurate pay records.
McDonald’s called the settlement a “mutually acceptable resolution to avoid the costs and disruption associated with continued litigation” and said that it is not a joint employer of its franchise workers.
In December 2015, a judge ruled that McDonald's was not the plaintiffs' joint employer under federal and state laws after the plaintiffs filed a lawsuit against the Smith Family franchisee. That lawsuit was settled for $700,000. However, the judge said McDonald’s could be held liable if the workers believed McDonald’s was their employer.
Such a designation would make the company liable for legal violations by franchisees and force it to bargain with union workers
The outcome of these lawsuits carry significant implications for truckstops and travel plazas that operate franchises.
Broadening the joint employer standard will expose more companies to legal liability for how their subcontractors, staffing agencies, and franchisees treat their employees. Further, when two or more employers jointly employ an employee, the employee's hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due or whether offers of healthcare coverage are required under the Affordable Care Act.
It also makes businesses more susceptible to workforce unionization by imposing new collective bargaining obligations and allowing unions the ability to strike or picket a large corporate entity rather than the individual location where there is a dispute.
The current state of uncertainty creates a risky and undesirable business environment for NATSO members. Some companies may fear that they will be considered joint employers with all of their contractors and/or franchisees, and decide to exert significantly more control over those entities' day-to-day operations in order to mitigate liability exposure. Other companies may take the opposite approach and try to avoid joint employer relationships by exerting significantly less control over their contractors and/or franchisees. In the truckstop business where the franchise business model is ubiquitous, this uncertainty can make it unnecessarily difficult for NATSO members to grow their businesses and create jobs.
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