Federal Court Rejects Alternative Joint Employer Theory

A federal judge recently issued a decision that rejected the application of a so-called “ostensible agency” theory of joint employment under California law.  The ruling effectively foreclosed the plaintiffs’ last legal theory in the case, which sought to hold the McDonald’s Corporation liable as a joint employer for alleged transgressions by one of its franchisees.

The case in question dates back to 2014, when several employees of the Bobby O. Haynes and Carol R. Haynes Family Limited Partnership, which owns and operates several McDonald’s restaurants, filed a lawsuit against the partnership and named McDonald’s as a joint employer.  The lawsuit alleged that the partnership edited or deleted time records; required off-the-clock work; and failed to pay meal period, rest period, and mandated overtime compensation. The suit also sought to certify a class of more than 1,200 hourly employees who had worked at the franchisee’s eight restaurants.

The McDonald’s Corporation in May 2016 filed a motion for summary judgment under the premise that it was not an employer of the Haynes partnership’s employees, and United States District Judge Richard Seeborg issued a ruling on that motion in August.

In that decision, the judge concluded that the McDonald’s Corporation did not meet the legal standard of a joint employer under two legal theories.  He noted, “McDonalds did not retain or exert direct or indirect control over plaintiffs’ hiring, firing, wages, hours, or material working conditions. Nor did McDonalds suffer or permit plaintiffs to work, engage in an actual agency relationship, participate in a conspiracy, or aid and abet the alleged wage and hour violations.” However, he held that the case could continue under an ostensible agency theory.

In January 2017, Judge Seeborg dealt a blow to the plaintiff employees when he denied the class certification they sought.  His ruling concluded that the law requires an analysis of every individual’s understanding of their employment relationship in order to apply the ostensible agency theory, and such an individualized approach necessarily precludes the formation of a class. 

Following that victory, McDonald’s filed a second motion for summary judgment claiming that it could not be held liable as a joint employer under the ostensible agency theory either.  In his March 10 ruling, Judge Seeborg found that the definition of “employ” under California law is determined by the state’s Industrial Welfare Commission’s (IWC) wage orders.  He noted that the IWC’s own definition of employer is not consistent with the California law that codified ostensibly agency relationships. 

The judge concluded that “in the end, plaintiffs resort to policy arguments. They insist that adopting their interpretation would advance the purpose of the Wage Order, but their arguments fall short. While courts are required to construe wage statutes broadly in favor of employees, ‘this principle does not provide [courts] with the authority to rewrite applicable legislation.’” 

Despite meandering around the judicial system for over two years, this joint employer case dealt with legal questions that are important to employers.  This blog has covered adverse decisions on similar issues dealing with joint employment, so it is worthwhile noting this one that went the right way.