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Franchisors Beware: McDonald's Workers Sue for Alleged Wage and Hour Violations by Franchisees

Seven class action lawsuits were recently filed against McDonald's Corp. and several McDonald's franchisees in California, Michigan and New York. The lawsuits are a direct result of the coordinated effort by plaintiffs' attorneys and the Service Employees International Union to pressure fast-food restaurants to pay their employees at least $15.00 per hour. The lawsuits are also part of a new strategy from the plaintiffs' bar to sue fast-food and pizza franchisors (i.e., the "deep pocket") for the conduct of independently owned franchisees.

The Michigan and New York class actions were filed in federal court and primarily allege that McDonald's Corp. and the franchisees violated federal law by shaving hours from employees' time cards, requiring employees to work off the clock and failing to pay overtime for hours worked in excess of 40 in a workweek. The California class actions were filed in state court and allege a variety of state labor law violations, including minimum wage and overtime violations and missed meal and rest breaks.

The lawsuits allege that McDonald's Corp. is not only culpable for the suits relating to its corporate-owned stores, but also for its franchisees because of McDonald's Corp.'s alleged heavy hand in monitoring and guiding the franchisees' timekeeping, scheduling and other policies. In particular, the Michigan lawsuits allege that McDonald's Corp. is a "joint employer" and thus also liable because it provides financial tracking computer software to franchisees, which allegedly guides when individual store managers may permit employees to be clocked in or on the clock. The software purportedly sends alerts to the manager when labor costs exceed a certain level of sales. As a result, the plaintiffs allege that managers prevented employees from clocking in (even though the employees were working) until the restaurant experienced a certain level of sales.

Generally, when determining whether a "joint employer" relationship exists, courts examine the totality of the circumstances, focusing on the economic realities of the particular relationship. A joint employment relationship may exist where two companies are deemed to share control of the employee, or one company is controlled by another company. Courts have considered a variety of factors when making this determination, including the ability to hire or fire the employees, supervision of the employees’ schedules and working conditions, determination of wages and the maintenance of employment records.

These McDonald's lawsuits will need to overcome some very high hurdles before they may be certified as class actions due to the individualized nature of the plaintiffs' claims and circumstances in the various stores. For example, certification may be inappropriate on a multi-store basis if McDonald's can show that individual store managers implemented their own procedures and practices for scheduling and timekeeping. Nevertheless, these cases are a good reminder for franchisors to review the policies, training materials, software, etc., that they share with franchisees to ensure that the materials are lawful and will not inevitably lead to employees working off the clock. Lastly, franchisors should review their relationships and interactions with franchisees to ensure that they are not exercising control in a manner that could support a joint employer relationship.

© 2019 Vedder Price

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