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McDonald’s Appeals Class Certification of Franchisee Workers in Wage Suit

SAN FRANCISCO – After a federal court certified as a class 800 current and former employees of a McDonald's multi-unit franchisee to pursue claims that they were not paid fairly for wages, overtime and maintenance of uniforms, McDonald's Corporation, also named as a "joint employer" under the theory of direct and vicarious liability, has filed a petition with the Ninth Circuit Court of Appeals to review the case.

U.S. District Judge James Donato stated in his July 7 decision in Ochoa, et al. v. McDonald's Corp. et al that in a nutshell the employees allege a variety of labor violations by the franchisee entity, Edward J. Smith and Valerie S. Smith Family Limited Partnership, and contend that their claims are typical of those of the class because the allegations were raised out of the franchisee's uniform conduct toward its employees. Because the franchisee has now settled with the workers, the class was certified to pursue claims against only McDonald's Corporation and McDonald's USA, LLC.

McDonald's motion for summary judgment was granted on the issue of whether it was "joint employer" with its franchisee regarding violations of labor law. The claims now that remain in the case are on the theory of "ostensible agency," meaning that the franchisee appears to be an "agent" of McDonald's.

On July 21, McDonald's argued that class certification was improper where liability depends on subjective and individual mental states regarding whether the plaintiffs [employees] actually believed that McDonald's was their true employer and reasonably relied on that impression to their detriment. A DLA Piper legal brief stated that McDonald's asserted that the court in its ruling held "that McDonald's had not provided evidence that the employees did not believe that McDonald's was their employer or that they were unjustified in relying on that belief." The court also noted that that McDonald's had submitted 'a raft of evidence' that the belief was false or at least negligent, including that all of the named plaintiffs [employees] had signed one of several disclosures acknowledging that each was "an employee-at-will of an independently owned and operated McDonald's franchise."

The legal bulletin further stated that McDonald's also argued that the court's reliance on 'ubiquitous features of every franchise arrangement" could lead to every class properly certified against an individual franchisee being automatically certified against the corporate franchisor as well.

Why is this case important to franchisors?

While the district court made clear that it was not addressing the merits, stating "it may well be that the proposed class has the 'fatal similarity of a failure of proof of ostensible agency, DLA Piper franchisor attorneys feels the case is important for several reasons:

First, although the court could have closed the door on class actions dealing with ostensible agency claims, it kept the door wide open for courts to certify such classes in the future so long as the claims can satisfy the traditional Rule 23 analysis.

Second, many of the facts that the court found significant in analyzing whether the plaintiffs were "exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis" – such as the fact that the employees worked in a heavily branded restaurant – are facts that are common in virtually all franchise systems.

Third, franchisors may want to consider including in their franchise agreements a requirement that the franchisee obtain from each employee a statement that such employee is employed by the franchisee and not the franchisor.  While not dispositive (and McDonald's argued that the court failed to credit or even acknowledge the evidence in Ochoa) the statement may support an argument that any reliance on the belief by that employee that the franchisor is his/her employer (solely or jointly) is unreasonable and not justified.


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