Salazar v. McDonald's Corp gives insight into who is considered the employer in a franchised-company.

Salazar v. McDonald’s Corp (US District Court for Northern District of California) **

In March 2017, a case was heard in the US District Court for the Northern District of California that dealt with the ostensible agencies and labor code violations in a franchised McDonald’s restaurant.  Plaintiffs argued that since the franchisor was an agent of McDonald’s, that McDonald’s was an ostensible agent who was liable for violations of the California Labor Code.  California IWC Wage Order 5-2001 provides that to employ persons, one must “engage, suffer, or permit to work”, and to be classified as an employer one must “directly or indirectly, or through an agent or any other person, employ or exercise control over the wages, hours, or working conditions of any person”.    

In prior rulings, McDonald’s was not found to be classified as an “employer” by this definition. So, the Defendants in this case moved for a summary judgment on the grounds that McDonald’s was not a joint employer of the named Plaintiff.  The Plaintiffs argued that McDonald’s did deserve to be classified as an employer, since they were involved in the working conditions in the McDonald’s restaurant, through the agent, the Franchisor.  The Court found that this interpretation of the definition of an employer would override the IWC Wage Order definition.  The IWC definition of “employer” was crafted with the knowledge of the practice of ostensible agency, which was purposefully left out of the definition. The Court held that when two provisions are in conflict, that the specific provision is the one that takes precedence over the general provision.  Therefore, the IWC Wage Order, as the more specific provision on the definition of employer, takes precedence over that of the California Labor Code, the general provision. The court sided in favor of McDonald’s as not being liable for violations of the California Labor Code and granted the summary judgement in favor of the Defendant.   

Definition: “Ostensible agency”

CA Civil Code section 2300 provides: "An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him."

Application: If one is employed in a franchised-company, the Franchisor operating and managing the working conditions is considered the Employer.  The principal corporation cannot be found liable for violations of the California Labor Code, but the specific franchise can be held liable for such violations in a court of law. 

                    **case not publicly available