McDonald’s Agrees To Pay California Franchise Workers $3.75 Million

McDonald’s Corporation, the world’s second largest employer, has agreed to settle the wage and hour claims of 800 fast food workers, in a resolution granted preliminary approval by a federal court in California. Court documents suggest that this is the first class action settlement ever achieved between McDonald’s and employees at franchisee-operated restaurants.

McDonald’s Workers Secure $3.75M In Settlement

The case, filed by employees working for five franchised restaurant locations in the Bay Area, accused franchisee The Edward J. Smith and Valerie S. Smith Family Limited Partnership of violating California’s Labor Codes. The workers will be paid $1.75 million, along with attorneys’ fees. They will also be reimbursed for the expenses necessary to notify potential class members of the lawsuit. Those additional damages bring the settlement’s total to a clean $3.75 million.

Wage and hour violations, according to the employees, were rampant in the McDonald’s restaurants operated by the Smith Family. In total, the fast food workers accused their employers of systemically breaking 13 different federal and state requirements, including:

• failing to pay all earned wages due to a “consistent error” in translating punch-clock data to payroll data
• failing to pay the daily overtime rate, required by California law, for overnight shifts, a result of “incorrect parameters [in the franchisee’s] automated timekeeping and payroll system”
• failing to provide meal and rest breaks in accordance with California law
• failing to pay employees back for the time and money spent ironing and cleaning their uniforms
• failing to provide workers with accurate wage statements

The all-important question at issue in the case, however, was always whether or not McDonald’s should be considered a “joint employer” of the workers, and thus liable for any wage violations committed by the franchisee.

McDonald’s Evades “Joint Employer” Status

In a September 2015 decision, the District Court appeared to answer this question with a firm “no,” ruling that McDonald’s could not be held liable as a joint employer, but that the workers could continue with their claims under an “ostensible agency” theory.

In essence, the Court ruled that McDonald’s, either intentionally or through lack of “ordinary care,” had led the workers to believe that they were employed by the corporation, even though they were never actually employed by it. The case proceeded on those grounds. Settlement negotiations lasted longer than a year. In a motion submitted by Plaintiffs, attorneys describe mediation sessions conducted at an “arms-length,” after “extensive and hard-fought litigation.”

Company Denies All Liability

The settlement in California has not, however, ended the contentious debate over whether or not McDonald’s serves as a joint employer for franchise workers. The agreement, now granted preliminary approval, makes clear that McDonald’s is not being held liable as a joint employer. Moreover, the settlement’s terms make no demand on the company to concede any liability. The company strongly denies violating any laws, or breaking any obligations that may or may not have been due to the 800 workers.

The agreement also includes injunctive relief against the Smith Family company, requiring the franchisee to implement appropriate record-keeping and scheduling practices. This measure does not carry over to the whole of McDonald’s, but the company will be required to create a new training document that Smith’s ownership, along with store supervisors and managers, can use to make their wage and hour software consistent with labor laws.

After years spent in court, the workers must feel some relief to know that, given the Court’s final approval, their case will have ended in substantial compensation. Other franchise employees, though, will have to continue fighting. McDonald’s status as a potential employer is still a matter of hot debate. The conversation is ongoing, according to the Wall Street Journal, currently being argued in other lawsuits, including two filed by the National Labor Relations Board.