McDonald’s Corporation recently agreed to pay $3.75 million to settle an employment class action involving workers in McDonald’s franchise-operated stores. A fairness hearing is scheduled to be heard on December 15. No doubt, this comes on the heels of the July ruling in the case of Ochoa vs. McDonalds Corp., and needless to say, McDonald's is not loving it.
What started as a lean in McDonald’s’ favor with an earlier ruling of partial summary judgment that McDonald’s was not directly liable as a joint employer has gone the other way in the July ruling that McDonald’s could be liable as a joint employer on the theory of ostensible agency, which has far reaching implications, including the Affordable Care Act (ACA).
In the July ruling, the Court ruled that a class could be certified against McDonald’s as a joint employer on a theory of ostensible agency. Among the factors of ostensible agency, include whether the employee of the franchisee in dealing with the franchisee does so with reasonable belief in the franchisee’s authority on behalf of franchisor (McDonald’s) and whether the belief is generated by some act or neglect by franchisor (McDonald’s).
What does this mean for purposes of the ACA?
ACA obligations apply to certain sized employers, including a joint employer. Franchisors who previously thought that any ACA obligations on the workers of their franchisees would fall only the franchisees. This ruling hints otherwise.
For franchisees, this ruling may make them more attractive as defendants to plaintiff’s lawyers. This could signal to plaintiff’s lawyers who may not have previously considered it financially worthwhile to pursue a class action against a franchisee by itself to reconsider because the franchisor (and often the deep pocket) may also be roped in through ostensible agency.
The overarching takeaway is a need for both franchisors and franchisees to rethink their human resources approach to workers.