Ochoa v. McDonald’s: First of Its Kind Joint-Employer Case Settles for $3.75M

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McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by: 
Suzy Lee, Associate
CAPSTONE LAW APC