Here’s something you don’t read every day: McDonald’s will pay $3.75 million to settle a federal lawsuit. The suit surrounded a labor dispute between a franchise owner in California and workers who claimed he cheated them out of wages and overtime, but its potential impact was greater. Had it seen its day in court, a judge could have held McDonald’s corporate liable for the working conditions at the company’s franchised restaurants. As it still stands, McDonald’s says it does not have control over how franchisees pay, schedule, or treat their employees.
An attorney for the workers, Joseph Sellers, says, “As far as I know, this is the first case in which [McDonald’s] has taken responsibility for economic losses caused by practices in the workplace of one of its franchisees.” A McDonald’s spokesperson said the company could not verify that claim.
The suit, filed by a group of employees in northern California, alleges that McDonald’s violated various labor laws, including failing to pay overtime, failing to pay minimum wage, and mis-recording time cards. The franchisee named in the original case settled with the workers but over the summer, a judge ordered that the class (there were at least 800 members) was certified to pursue claims against McDonald's Corporation, too.
“McDonald’s has vigorously asserted that it is not jointly responsible for the conduct of its franchisees, but the court had allowed us to go to trial which would have permitted us to hold them legally responsible,” says Sellers. “I infer, from the relief we’ve received, that the company must have realized it suffered some significant risk if it had gone to trial.”
Sellers says his clients recovered “more than 100% of the economic losses they suffered,” thanks to the settlement.
So why is the case so significant? The settlement means that McDonald’s has, perhaps for the first time, agreed to accept some of the responsibility of the working conditions of its franchisees. “The judge ruled that that we had a legal theory on which we could go to trial and hold [McDonald’s] liable, if the proof supported it,” explains Sellers. “The judge didn’t rule that we were entitled to this relief, but that there was a legal theory that permitted us to prove it. That’s important.”
That legal theory — that McDonald’s could be taken to court along with its franchisees — remains in place. Now, says Sellers, it can act as a precedent for future cases.
The suit was one of many filed in recent years seeking to designate McDonald’s as a “joint employer” of its workers, and therefore liable for things like overtime wages and harassment. McDonald’s has vehemently argued that it is not a joint employer, and that only its franchisees can be held responsible for the working conditions at franchised locations.
In a separate case, the National Labor Relations Board is also arguing that McDonald’s should be considered a joint employer. That case hinges on claims that workers at some McDonald’s restaurants were subject to retaliation for taking part in minimum wage protests, also known as the Fight for $15. The trial is ongoing.
If McDonald's were to be declared a joint employer, the decision could have a lasting impact on how other other companies with franchises operate. As legal scholar Cesar Rosado explained to the Chicago Tribune, if McDonald's were found to be a joint employer, "it doesn't mean that all companies with franchises (could be considered) joint employers, but many of them are very likely going to be."
The Wall Street Journal reports that a lawyer representing the workers in San Francisco called the recent settlement a historic victory, noting that more than 800 workers will benefit from the settlement.
But it doesn’t seem McDonald’s views it as quite so historic.
In an email, McDonald’s spokesperson Terri Hickey provided the following statement: “As this court previously ruled, McDonald’s is not a joint employer of its independent franchisees’ employees. With this agreement, McDonald’s reconfirms that it is not the employer of or responsible for employees of its independent franchisees, rather we entered into this mutually acceptable resolution to avoid the costs and disruption associated with continued litigation.”