Is a Franchisee an Ostensible Agent of a Franchisor? — California Court Denies Summary Judgment on This Theory


By: Allison Shrallow

On September 25, 2015, the United States District Court for the Northern District of California granted in part and denied in part McDonald’s USA and McDonald’s Corporation’s Motion for Summary Judgment in the case Stephanie Ochoa, et al. v. McDonald’s Corp., et al. In its Motion, McDonald’s argued it is not Plaintiffs’ joint employer and thus should not be held liable for the various Labor Code violations Plaintiffs allegedly suffered at the hands of its Franchisee, Edward J. Smith and Valerie S. Smith Family Limited Partnership.

The court granted Summary Judgment in favor of McDonald’s on the issue of whether McDonald’s qualified as a joint employer under any one of the three definitions of “employer” set forth by the California Supreme Court in Martinez v. Combs. In opposition to McDonald’s Motion, Plaintiffs submitted evidence that McDonald’s controlled franchisees through its power to terminate franchise agreements, provided recommendations on crew scheduling and staffing, monitored customer service metrics, owned or leased all locations, furnished franchisees with software, and sent business consultants to counsel Franchisees and their employees.   The court, however, found such evidence did not establish a genuine dispute of material fact as to whether McDonald’s, as a franchisor, had the authority to make hiring, firing, wage and staffing decisions at Smith’s restaurants. The court found such decisions to lie exclusively with Smith and its managers.

However, in an interesting twist, the court denied McDonald’s Motion for Summary Judgment on the issue of whether it was a joint employer under an ostensible agency theory of liability. Plaintiffs advanced a theory that Smith is McDonald’s ostensible agent by submitting declarations that they believed McDonald’s was their employer because they wore McDonald’s uniforms, served McDonald’s food in McDonald’s packaging, received paystubs and orientation materials marked with McDonald’s name and logo and applied for jobs through McDonald’s website. The court found “because there is evidence from which a jury could reasonably conclude that McDonald’s and Smith shared an ostensible agency relationship, summary judgment is denied. McDonald’s potential liability as a joint employer under ostensible agency will be resolved at trial.”

Freeman, Mathis & Gary, LLP’s Dennis D. Strazulo, John L. Fitzgerald and Kacie L. Manisco represent Edward J. Smith and Valerie S. Smith Family Limited Partnership in this matter.