Common Sense Prevails For California Franchisors: Ninth Circuit Focuses On Actual Control Of The Worker In Joint Employment Analysis

Seyfarth Synopsis: The Ninth Circuit's recent decision in Salazar v. McDonald's Corporation is welcome news for entities facing concerns about joint employment status under California law, and in particular, for franchisors. In Salazar, the Ninth Circuit held that the plaintiffs, who were employed by a McDonald's franchisee, were not also employed by McDonald's under California law. In an opinion that acknowledged the business realities of the franchisor-franchisee relationship, the court recognized that franchisors must retain some control over quality and brand standards, even where that control indirectly impacts a franchisee's employees. This type and degree of control, the court concluded, was not enough to create a joint employer relationship.

The plaintiffs in Salazar v. McDonald's Corporation worked for Haynes Family Limited Partnership ("Haynes"), a McDonald's franchisee. Haynes selected, interviewed, and hired employees for its franchise restaurants. It also trained new employees, supervised, disciplined, and fired employees. Haynes set employee schedules, monitored their time entries, and set and paid their wages. McDonald's did not perform any of these functions.

Under the franchise agreement, Haynes was required to meet certain quality standards and serve McDonald's products. Haynes managers were also trained by McDonald's on topics such as meal and rest break policies. Haynes management voluntarily used McDonald's computer system for scheduling, timekeeping, and determining regular and overtime pay. Haynes employees also wore McDonald's uniforms.

The Salazar plaintiffs filed a class action alleging various wage and hour violations against both Haynes and McDonald's on a joint employment theory. After settling with Haynes, the plaintiffs continued litigating against McDonald's. The district court then granted McDonald's motion for summary judgment on the ground that McDonald's did not employ the plaintiffs, and the plaintiffs appealed. In examining the question of joint employment status, the Ninth Circuit considered the three definitions for employment that the California Supreme Court applied to joint employment claims in Martinez v. Combs: (1) exercising control over wages, hours, and working conditions; (2) suffering or permitting work; or (3) engaging, thereby creating a common law relationship.

The Ninth Circuit first examined the extent of McDonald's control over the franchisee's employees. The court found that, although...