Last week’s filing of seven lawsuits against McDonald’s Corp. and several of its franchisees threatened the industry titan with “vicarious liability” for the alleged wrongdoing of its owner-operators, which large restaurant franchisors have faced before, attorneys said.
However, in the lawsuits brought by McDonald’s employees against the brand and its licensees in California, Michigan and New York, the plaintiffs seek to characterize Oak Brook, Ill.-based McDonald’s Corp. as their “joint employer,” which could mean “the ramifications are far more significant,” and that McDonald’s and other brands must be more proactive, said Rochelle Spandorf, a Los Angeles-based partner with law firm Davis Wright Tremaine LLP.
If the plaintiffs in these cases prevail, or if joint-employer language shows up in future claims, franchisors could deal with not only increased liability, but also more difficulty sharing best practices with their franchisees, Spandorf added.
Previously, during a presentation at the International Franchise Association Convention in New Orleans in February, Dennis Wieczorek of the law firm DLA Piper called the move to classify franchisors as joint employers “the biggest danger to franchising right now,” citing a previous case about McDonald’s that appeared before the National Labor Relations Board earlier this year.
“There is clearly a trend,” Wieczorek said during his presentation. “The people who have been appointed to the Department of Labor are clearly from a union background, and their view is that franchising is a ‘fissured industry,’ meaning that the franchisor and its entire system should be viewed as one employment unit. … We’re going to be hearing a lot more about that.”
Spandorf and Wieczorek offer advice on how restaurant franchisors could protect themselves from similar threats of vicarious liability, including joint-employer claims.
Stay out of hiring, firing and discipline
What makes vicarious liability cases so expensive to defend and hard to dismiss with pretrial motions is that they are so fact-intensive, requiring lengthy discovery periods to read through all documents exchanged between the franchisor and franchisee, Spandorf said. As such, it is best not to put any advice on employment practices down on paper, she said.
“My advice is to stay out of the whole subject of hiring, firing, disciplining and establishment of employment policy,” she said.
Wieczorek added that franchisors should avoid the topic of employment practices with their owner-operators in emails or meetings with support staff as well.
“I would advise brands to pull out of that area and don’t even talk about it,” he said. “It can only get you into trouble.”
Refer franchisees to local lawyers
Though Wieczorek agreed that the litigious environment would make many restaurant brands wary of trying to share best practices with franchisees, he conceded that those operators would need lots of help complying with employment laws that look quite different depending on where their restaurants are located.
In that case, he said, franchisees need to work closely with attorneys in their local markets.
“A national franchisor is in no position to tell a franchisee how they comply with local laws,” Wieczorek said. “There are not only state, but also city and county laws that go down to the micro level on these things. If you want to give recommendations, you can’t make anything mandatory, and you should tell your operators to check with their local lawyers.”
Don’t over-share in manuals or documents
Many franchisors account for the changes in law from one local jurisdiction to another by including copious disclaimers like, “State laws differ; consult your attorney,” if they print template manuals for brand standards that franchisees could then adapt to their local markets.
“I tell my clients to shy away from template manuals,” Spandorf said. “A lot of things in the manual are required, but something you might want to show as a best practice gets included in a manual of requirements, then workers can use the manual as evidence that the franchisor is dictating the franchisee’s employment practices. The whole area of even just trying to be helpful is high-risk, especially with the proliferation of cases involving inadvertent-employer status.”
Brands need to be more careful when sharing a best practice, she said, because courts read through franchise contracts to determine if the controls put in place by the franchisor are just enough to satisfy the requirements of federal trademark and franchise law, or if the controls go into more detail to cover more facets of the franchisee’s business.
That is why she was “surprised” to read employees’ claims in the suits against McDonald’s, alleging that the franchisor encouraged franchisees to control their labor costs by having crew members work off the clock when their units’ labor-scheduling software sent alerts, “because McDonald’s goes to the same meetings I do and reads the same cases I do,” Spandorf said.
McDonald’s operates or franchises approximately 35,000 restaurants in more than 100 countries, including more than 14,000 locations in the United States.