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October 2019

Ninth Circuit Rules Franchisors Not Liable On Franchisee’s Employees’ Labor Claims

The Ninth Circuit today ruled that a franchisor is not liable to a franchisee’s employees who claim they were denied overtime premiums, meal and rest breaks, and other Labor Code benefits. In Salazar v. McDonald’s Corp., the court affirmed summary judgment, holding that “McDonald’s is not a joint employer of the franchisee’s employees and that Plaintiffs’ ostensible-agency and negligence claims fail as a matter of law.”

The court found that the relationship between the franchisor and the franchisee’s employees met none of the three traditional tests for “employ.”

Control. Although McDonald's imposed standards for marketing and operations, this was not enough. “McDonald’s involvement in its franchises and with workers at the franchises is central to modern franchising and to the company’s ability to maintain brand standards, but does not represent control over wages, hours, or working conditions.”

Suffer or permit. The court also found the relationship failed the “suffer or permit to work” test, even though the evidence “would permit a finding that McDonald’s could have prevented some of the alleged wage-and-hour violations but did not do so” if it had not insisted on use of a computer system that did not recognize some hours as overtime. While arguably this meant that McDonald's “permitted” the violations, the court pointed out that the definition “pertains to responsibility for the fact of employment itself.” The court expressly reserved the question whether McDonald’s could be liable to the franchisee. And notably, Chief Judge Thomas dissented from this portion of the decision, opining that because the computer system was imposed by the franchisor and was allegedly a direct cause of lost wages, there were triable issues of fact whether the “suffer or permit” test applied.

Manner and means. Nor did the franchisor meet the common-law definition of employ as “the right to control the manner and means” of work.  “McDonald’s exercise of control over the means and manner of work performed at its franchises is geared specifically toward quality control and maintenance of brand standards. Thus, McDonald’s cannot be classified as an employer of its franchisees’ workers under the common law definition.”


Marie Trimble Holvick
Don Willenburg

Employment Law
Retail & Hospitality