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Are Franchisors like McDonalds Accountable for Wage Theft?

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San Francisco, CAThis is for the guy or the ‘girl’ on the fryer who feels burned when the hours on the paycheck are short under California labor law. Guadalupe Salazar et al., Plaintiffs, v. McDonalds Corp., et al., Defendants, a class action lawsuit brought on behalf of Bay area McDonalds employees, raises again the question of whether a big corporate franchisor can be held liable for wage theft.

In Salazar, the McDonalds workers assert that their employer failed to:
  • pay legally required wages;

  • provide mandated meal and rest breaks;

  • keep lawful records and wage statements; and

  • reimburse them for time and expenses spent cleaning their uniforms.

They seek back wages, liquidated damages, injunctive and declaratory relief, civil penalties, interest, attorneys’ fees, and costs.

The question is who is an “employer”? Is it just the franchisee, in this case a collection of partnerships: the Bobby O. Haynes Sr. and Carole R. Haynes Family Limited Partnership, 4ATX Partnership, and BJGO Partnership? These kinds of partnerships are typically just pass-through entities with very few assets. In any case, they have already offered $235,000 by way of class action settlement.

Or do the franchisors, in this case McDonald’s Corporation, McDonald’s U.S.A., LLC, and McDonald’s Restaurants of California, Inc., also share the obligation to comply with California state labor laws? It’s not just a question of deep pockets.

Setting a precedent that giant corporate franchisors are responsible for the fair, equitable and legal treatment of workers may be the best way to reduce the wage theft some see as endemic in low-wage food service and hospitality jobs.

The legal argument focuses the meaning of Industrial Wage Commission Wage Order 5-2001 . The Order defines an "employer" as one who "directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person." The sticking point is whether McDonalds Corp and the other corporate defendants exercise control over these matters through the Hayes and other partnerships, as if these franchisees were their agents. Lawyers typically parse carefully through the wording of franchise agreements to make arguments either for or against the existence of an agency relationship.

But another way to look at this is through the lens of economic reality. Franchisees are, in many ways, the unfortunate middle people. Small enterprises, obligated to make hefty payments to franchisors and operating within a strictly regulated framework, they can only hope to turn a profit in two ways: increasing traffic and decreasing costs, including wages. Even without explicit direction, the economic incentive is clearly there to sail very close to the edge of the law when it comes to paying workers.

The court has previously held that the franchisors (McDonalds) were not acting through the franchisees (Haynes) to control the wages, hours and conditions of employment, and so were not “employers” subject to liability under California labor law. In October, the workers sought reconsideration of that holding. Even if the wall of corporate franchisor immunity holds this time, the issue is sure to reappear in the future.


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