McDonald’s On The Hook For Class Certification Of Wage And Hour Claims Under Ostensible Agency Theory

Emily Leahy
July 18, 2016

Despite finding that as a matter of law McDonald’s was not directly liable as a joint employer, a California federal judge granted class certification to McDonald’s workers, saying the claims against McDonald’s Corp. can proceed on a classwide basis under a theory of ostensible agency.  Under this theory, McDonald’s could be liable because employees reasonably believed they were employed by McDonald’s.

The Facts

The workers filed the class action in 2014, alleging a variety of wage and hour violations by defendant the Edward J. Smith and Valerie S. Smith Family Limited Partnership (“Smith”), which owns and operates five restaurants in California under a franchise agreement with McDonald’s. Plaintiffs also sued McDonald’s on direct and vicarious liability grounds.

McDonald’s moved for summary judgment on the grounds that it was not a joint employer. The Court granted summary judgment on plaintiffs’ direct liability theories, finding that McDonald’s is not directly liable as a joint employer with the Smiths, but denied it on the issue of whether McDonald’s may be liable on an ostensible agency basis. 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. Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal. App. 4th 741, 747 (1997).

Plaintiffs then settled with the Smiths, leaving the McDonald’s entities as the last standing defendants.

Plaintiffs moved for certification of a class to pursue claims for: (1) miscalculated wages; (2) overtime; (3) meals and rest breaks; (4) maintenance of uniforms; (5) wage statements; and (6) related derivative claims.

Ostensible Agency Not A Bar To Class Certification

McDonald’s argued that allegations of ostensible agency are incapable of being resolved on a classwide basis because they involve individualized questions of personal belief and reasonable reliance on an agency relationship.

The court disagreed, holding that 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 then reviewed the evidence to determine whether to allow classwide adjudication against McDonald’s.  Plaintiffs tendered “substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” For example, plaintiffs submitted declarations showing that 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.  The fact that each employee spent every work day in a restaurant heavily branded with McDonald’s trademarks and name was also informative. These facts were shared in common across the proposed class and made classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.

On this record, the court found that plaintiffs did enough to show that the ostensible agency issue can be litigated on a classwide basis, although the court noted that whether plaintiffs will ultimately prevail or fail in their proof of agency is for the trier of fact to decide and not for the court to resolve in determining certification.

Class Certification

The court ruled that the plaintiffs provided evidence of commonality and typicality for their claims of miscalculated wages and overtime violations, as well as on maintenance of uniform claims.

However, the court held that there was insufficient commonality for missed meal and rest period claims to support a class.  The plaintiffs did not tender any evidence of a standard policy or practice, formal or informal, of denying workers their meal and rest breaks. Instead, plaintiffs said only that crew members were subject to a “manager-directed break policy.”  In that context, determining whether a crew member was denied her rights as an employee would necessarily turn on individualized inquiries into the managers’ actions and decisions.

Employer Take Away

This decision gives plaintiffs two bites at the apple: under a direct liability joint employer theory as well as an ostensible agency theory.  This opens the possibility of two different legal theories to hold a potential joint employer liable in wage and hour class actions, increasing the litigation risk in alleged dual employment situations.