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No class certified in claim that McDonald’s is employer of franchisee’s employees under ostensible agency

By Kathleen Kapusta, J.D.

Declining to certify a class of more than 1,200 workers at eight McDonald’s franchise restaurants in California under an ostensible agency theory, a federal court in that state found the ostensible agency analysis requires individual inquiries into class members’ experiences. The court also granted the fast food giant’s motion to strike the plaintiffs’ representative claims under the California Labor Code Private Attorneys General Act (PAGA) (Salazar v. McDonald’s Corp., January 5, 2017, Seeborg, R.).

The plaintiffs, three crew members who worked at McDonald’s restaurants owned by a franchisee, brought suit on behalf of themselves and a putative class against the franchisee and McDonald’s for a variety of alleged labor violations, including failure to pay correct wages, compensate them for the time and expense of uniform cleaning, and provide timely and legally compliant meal and rest breaks. Arguing that it did not jointly employ the plaintiffs, McDonald’s moved for summary judgment and in August 2016, the court granted its motion in part and denied it in part.

Proposed class. The summary judgment order concluded that McDonald’s was not liable as a joint employer with the franchisee but factual disputes precluded summary judgment on the issue of whether it might be liable under an ostensible agency theory. The plaintiffs then moved to certify a class of more than 1,200 hourly, nonexempt, nonmanagerial workers at eight McDonald’s franchise restaurants in Oakland and San Leandro, California. Because the plaintiffs recently reached a preliminary settlement with the franchisee, the McDonald’s entities are the only remaining defendants.

Because the plaintiffs could proceed against McDonald’s only under a theory of ostensible agency, as a threshold matter, they had to show this theory was amenable to classwide treatment. Under California case law, there are three requirements necessary before recovery may be had against a principal for the act of an ostensible agent: “[(1)] The person dealing with the agent must do so with belief in the agent’s authority and this belief must be a reasonable one; [(2)] such belief must be generated by some act or neglect of the principal sought to be charged; and [(3)] the third person in relying on the agent’s apparent authority must not be guilty of negligence.” McDonald’s argued, and the court agreed, that individualized inquiries are necessary to establish each element.

Actual belief. The plaintiffs argued that they could show crew members believed the franchisee to be an agent of McDonald’s through common proof because California law permits ostensible agency to be implied from circumstances. They contended that crew members apply for employment either on the McDonald’s website or on paper documents with the McDonald’s logo; receive McDonald’s orientation packets welcoming them to McDonald’s; are trained using McDonald’s-produced videos and training modules; receive paychecks that include the McDonald’s logo; wear the standard McDonald’s logoed uniforms; and work in stores that use the McDonald’s “System,” logo, brand, and operational guidelines.

While they argued that these common circumstances supported the classwide inference that crew members believed McDonald’s was their employer, the court found the factual record refuted this conclusion because crew members did not receive the same orientation materials or the same job training, as all did not watch the training videos or attend the same orientation sessions. Instead, employees received different information regarding the agency relationship from managers and franchisee family members. These differences precluded an inference of common belief among class members.

Reasonable belief. The plaintiffs also failed to show how reasonable belief could be established on a classwide basis. Explaining that the reasonableness of a party’s belief depends on the information known or available to the party, the court observed that the information any crew member knew or should have known varied as they were all told different information regarding their employer depending on when they were hired, who in the franchisee family hired them, and who trained them. In addition, putative class members received, reviewed, and signed different disclosures regarding their employer. While the online employment applications, orientation booklets, orientation receipts, acknowledgment forms, wage statements, and tax forms all stated that putative class members are employees of an independent McDonald’s franchise, some class members received these documents and others did not.

Reliance. Nor could the plaintiffs show that reliance could be established on a classwide basis. While they relied primarily on cases where reliance has been inferred from a “common sense” or “logical explanation” for putative call members’ actions, the court found no “common sense” or “logical explanation” existed here. “The diverse knowledge and expectations that class members bring to the job ensures that the ‘value’ of working at McDonald’s differs greatly from one to another,” said the court, noting that class members do not “share a common universe of knowledge and expectations” and that classwide circumstantial evidence will not suffice to prove reliance in this case.

Citing the Supreme Court’s decision in Tyson Foods, Inc. v. Bouaphakeo, the plaintiffs argued that common evidence and representative testimony could establish liability and that McDonald’s could challenge these inferences by contesting the representativeness of their proffered testimony. Noting that in that case, the employees sought to introduce a representative sample to estimate the average time needed to don and doff gear to fill an evidentiary gap created by the employer’s failure to record adequately donning and doffing time, the court here pointed out there was no similar evidentiary gap caused by a recordkeeping failure and “representative testimony will not avoid the problem that the inquiry needs to be individualized.”

At its core, said the court, “the plaintiffs’ proposal for establishing agency via common inference seeks to prove too much. While there is not a general bar on certification in cases involving ostensible agency, and the theory may well be amenable to common proof under certain circumstances, such is not the case here.” The experiences of class members were too varied for it to be appropriate to rely on a common set of documents to infer the reasonable belief, lack of negligence, and reliance of 1,200 crew members, the court concluded.

PAGA claims. In granting McDonald’s motion to strike the plaintiffs’ PAGA claims, the court noted that the parties presented a robust evidentiary record in support of their motions regarding class certification, which provided a sufficient basis for assessing the manageability of proving ostensible agency on a classwide basis. Related to the argument on manageability, McDonald’s argued that the plaintiffs failed to identify adequately the “aggrieved individuals.” Here the court found that the plaintiffs must provide some “description of the aggrieved employees . . . to give fair notice as to what the scope [of] the PAGA claim is.”

While they brought suit on behalf of hourly, nonexempt, nonmanagerial workers, they offered no easy way to identify those who may actually be aggrieved under the ostensible agency theory, said the court, noting that there are more than 1,200 putative class members in this case and that some, but not all, of them were notified explicitly of their employment relationship through orientations, training, and documents. Thus, observed the court, the “aggrieved employees” were not defined with particularity. For these reasons, the representative PAGA claims were stricken.