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August 23, 2016

Court Ruling Would Allow Plaintiffs’ Lawyers to Supersize Their Damages in Case Against McDonald’s

U.S. District Judge James Donato recently ruled that McDonald’s Corporation could be held liable in a class action lawsuit against five family owned McDonald’s franchises in California — a move that has plaintiffs’ lawyers seeing the gold in the golden arches. 

The franchisees were sued in 2014 over wage and hour violations for allegedly incorrectly calculating overtime and not reimbursing employees for washing their uniforms.  The five restaurant owners settled the lawsuit for $700,000. McDonald’s Corporation, however, also was listed as a defendant on the suit, and plaintiffs’ lawyers want to increase their payout by holding the corporation liable for the violations. 

The meat of this case is whether or not a franchisor can be held responsible for the labor practices of a franchisee. The lawyers for McDonald’s Corporation argued that the corporation has no authority over the daily labor practices of the franchisees. Further, according to the California Supreme Court’s ruling in Patterson v. Domino’s Pizza, a franchisor is not liable for the employment practices of the franchisee, unless the franchisor has some direct and immediate control over those practices — such as firing, hiring, or supervising the employees. 

Judge Donato ruled that these franchisees could be considered “ostensible agents” of the corporation. In other words, they were acting on behalf of the corporation.  If the employees believe this, ruled the judge, then McDonald’s Corporation could be held liable. 

This “ostensible agent” argument could be the catch-all for plaintiffs’ lawyers. By adding the corporation as a defendant, the attorneys can increase the amount they can get in an award judgment. Franchisors could be dragged into any suit, big or small, with their franchisees over operations that they have no control over.

The whole principle of opening up your own franchise is to run the business yourself.  The judge’s ruling in this case could lead to crippling litigation costs for businesses that currently allow franchisees to remain independent. The entire business practice would be threatened.

In this case, the charges were settled by the employer — the five restaurants — so pursuing the corporation as the sole defendant is about supersizing the payout the plaintiffs’ lawyers will get from the case, not justice.

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