McDonald's Has to Answer Whether Franchisee Conduct Merits Class Action Suit

By Dave Strausfeld, J.D.

July 13, 2016

http://www.employmentlawdaily.com/index.php/news/whether-mcdonalds-liable-for-franchisee-wage-violations-under-ostensible-agency-theory-to-be-decided-as-class-action/

Granting class certification in a suit seeking to impose liability on McDonald’s for violations of California wage laws at a franchisee’s restaurants, a federal district court in California rejected McDonald’s categorical assertion that an “ostensible agency” theory can never be adjudicated on a classwide basis because it involves individualized questions of personal belief and reasonable reliance on an agency relationship. Instead, because ostensible agency “may be implied from circumstances,” the issue of whether the franchisee’s employees “reasonably believed” the franchisee was acting as McDonald’s agent, thus providing a basis to impose liability on McDonald’s, appropriately could be decided on a classwide basis (Ochoa v. McDonald’s Corp., July 7, 2016, Donato, J.).

Four individuals who worked as hourly employees at McDonald’s restaurants brought a putative class action alleging they were denied overtime pay and other rights under California labor law at five McDonald’s restaurants in California owned by a particular franchisee. The franchisee settled the claims against it, and McDonald’s itself was the last standing defendant.

Ostensible agency. Previously, the court ruled on summary judgment that although McDonald’s was not a joint employer of these individuals, disputed facts precluded summary judgment on the issue of whether McDonald’s might be liable because the franchisee was its ostensible agent. Ostensible agency exists where (1) the person dealing with the agent does so with reasonable belief in the agent’s authority; (2) that belief is “generated by some act or neglect of the principal sought to be charged,” and (3) the relying party is not negligent, explained the court, citing the California Court of Appeal’s decision in Kaplan v. Coldwell Banker Residential Affiliates, Inc.

Company’s categorical objection. In opposing class certification, McDonald’s asserted categorically that “allegations of ostensible agency are incapable of being resolved on a classwide basis.” The essence of the objection was that ostensible agency involves individualized questions of personal belief and reasonable reliance on an agency relationship, necessarily rendering class treatment inappropriate.

Unconvinced, the court stated that nothing in ostensible agency “marks it as forbidden territory under Rule 23.” Ostensible agency does not “demand unique or alternative treatment, and certainly does not stand entirely outside Rule 23 as impossible to adjudicate on a classwide basis,” the court declared.

Common evidence. Since there was no a priori bar to class certification in cases involving ostensible agency, the question became whether the particular facts in this case allowed for classwide adjudication against McDonald’s. “They do,” the court concluded, because there was “substantial and largely undisputed evidence” that the restaurant crew members were exposed to “conduct in common” that would make proof of ostensible agency “practical and fair on a class basis.” For example, their declarations indicated they were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website. “These facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.”

Individualized showings unnecessary. And because ostensible agency “may be implied from circumstances,” individualized evidence of each crew member’s reasonable belief that the franchisee was McDonald’s agent or reliance on such a belief would not be needed. As noted, certain common evidence “makes possible” that crew members reasonably believed the franchisee was merely McDonald’s agent—as they averred in declarations they honestly believed. “Significantly, on the other side of the ledger, McDonald’s has submitted no evidence at all indicating that any named plaintiff or putative class member did not believe that McDonald’s was their employer or that they were unjustified or unreasonable in relying on that belief.”

In short, “the mere fact that the ostensible agency inquiry will need to be made and resolved to determine McDonald’s liability in this case does not by itself stand as a bar to class certification.”

Class certified as to most claims. With McDonald’s preliminary objection to certification overruled, the court engaged in a traditional Rule 23 analysis. The court ultimately certified the following claims for class action treatment: unpaid overtime (having to do with overnight shifts and how hours were attributed to particular days), maintenance of uniforms (being required to regularly wash and iron their McDonald’s uniforms but not reimbursed for their time and expense), and miscalculated wages (using an “hour.hundredths of an hour” format rather than an “hour:minute” format), and certain derivative claims. On the other hand, the plaintiffs’ claim involving missed meal and rest break periods was not certified because it did not meet the commonality requirement, given the lack of evidence that there was a standard policy or practice of denying crew members these breaks

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