Guadalupe Salazar v. McDonald's Corp.
939 F.3d 1051 (9th Cir. 2019), as amended (2019)
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Rule of Law:
Under California law, a franchisor is not the joint employer of its franchisee's employees unless it exercises direct control over core employment functions like hiring, firing, wages, and hours, or has the power to cause or prevent the work from occurring. Providing technology or imposing brand-wide standards, even if they contribute to wage-and-hour violations, is insufficient to establish an employment relationship.
Facts:
- Guadalupe Salazar, Genoveva Lopez, and Judith Zarate worked at McDonald's franchise restaurants operated by the Haynes Family Limited Partnership ('Haynes').
- Haynes exclusively handled all direct employment functions, including selecting, hiring, training, firing, setting wages for, scheduling, and disciplining its employees.
- Under its franchise agreement, McDonald's required Haynes to use its Point of Sale (POS) and In-Store Processor (ISP) computer systems.
- Haynes also voluntarily used additional McDonald’s software for scheduling, timekeeping, and determining pay.
- The McDonald's-provided ISP system contained default settings that allegedly caused wage-and-hour violations, including incorrect overtime thresholds (e.g., 8:59 instead of 8:00 hours) and improper meal break timings.
- McDonald's represented to Haynes that its computer systems complied with labor laws and discouraged franchisees from altering the settings.
- McDonald's required that at least one McDonald's-trained manager be present during each shift at the Haynes franchises.
- McDonald's required Haynes' employees to wear standard uniforms and keep them 'clean and neat.'
Procedural Posture:
- Guadalupe Salazar and other employees filed a class action lawsuit against their franchisee, Haynes, and the franchisor, McDonald's Corp., in the United States District Court for the Northern District of California.
- The plaintiffs and the franchisee, Haynes, reached a classwide settlement.
- McDonald's moved for summary judgment, arguing it was not a joint employer of the plaintiffs.
- The district court granted summary judgment in favor of McDonald's, concluding it was not a joint employer under California law.
- The district court also granted subsequent motions from McDonald's to strike the plaintiffs' PAGA claims and for summary judgment on their ostensible agency theory.
- The plaintiffs, as appellants, appealed the district court's judgments to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a franchisor qualify as a joint employer of its franchisee's employees under California law, and thus become liable for wage-and-hour violations, when it does not control hiring, firing, or daily supervision but requires the use of a computer system whose settings contribute to those violations?
Opinions:
Majority - Judge Graber
No, a franchisor does not qualify as a joint employer under these circumstances. McDonald's involvement with its franchisee was geared toward maintaining quality control and brand standards, not exercising control over the wages, hours, or working conditions necessary to establish an employment relationship. The 'suffer or permit' definition of an employer concerns the power to prevent the work from occurring altogether (i.e., to hire and fire), not merely the ability to prevent specific labor law violations caused by providing faulty tools or advice. Furthermore, under the common law test, McDonald's did not control the 'manner and means' of the employees' work, as its control was limited to brand-wide operational standards consistent with the franchise model. The employees' ostensible agency and negligence claims also fail because the wage-and-hour statutes provide the exclusive remedy.
Dissenting in part - Chief Judge Thomas
No, on the 'control' and common law definitions, but a genuine issue of material fact exists as to whether McDonald's is a joint employer under the 'suffer or permit' definition. California’s wage-and-hour laws should be construed broadly to protect employees. The 'suffer or permit' definition imposes liability on a business owner who knows of unlawful working conditions and has the power to prevent them but fails to do so. Here, Plaintiffs presented evidence that McDonald's provided the ISP computer system that was a direct cause of their lost wages, knew that work was occurring under unlawful conditions, and had the ability to prevent these violations by changing the system's settings. This evidence is sufficient to create a triable issue of fact for a jury to decide.
Analysis:
This decision significantly clarifies and narrows the scope of joint employer liability for franchisors under California law. It insulates franchisors from liability for the employment practices of their franchisees, so long as they avoid direct control over core employment functions like hiring, firing, and setting wages. By holding that providing business systems or enforcing brand standards does not create an employment relationship, the ruling protects the traditional franchise business model. However, it also creates a potential accountability gap where a franchisor can mandate the use of tools that facilitate wage violations without being held directly responsible as an employer.
