Two years after the National Labor Relations Board General Counsel declared that McDonald’s could be held responsible for franchisees’ bad labor practices, the fast food giant has agreed, for the first time, to pay $3.75 million to settle a lawsuit that claimed the company was liable for labor law violations by a California franchisee. 

McDonald’s will pay about 800 employees at five California restaurants $1.75 million in back pay and damages, as well a $2 million in legal fees to settle the allegations.

The settlement [PDF], which must still be approved by a judge, puts an end to a two-year old lawsuit that alleged McDonald’s and the franchisee — Smith Family LP — were jointly liable for a slew of California labor law violations, including failing to pay overtime and providing meal time, failing to keep accurate pay records, and not reimbursing workers for time and money spent cleaning uniforms.

In a separate and earlier agreement, the Smith Family franchisee agreed to pay $500,000 to the workers.

McDonald’s — and other companies that prescribe to the corporate/franchisee model — argued that it merely licenses its brand and products to the Smith Family, and the franchisee was responsible for complying with rules related to hiring, wages, and hours.

But two years ago, the NLRB General Counsel determined that McDonald’s HQ exerts such an influence over its franchisees that it should be treated as a joint employer alongside the franchisees. That means the company could be held liable if its franchise owners run afoul of labor laws.

While the General Counsel decision didn’t necessarily set a standard for all franchised companies, it did mean that McDonald’s HQ would have to defend itself in dozens of McDonald’s-related cases that the General Counsel believes have merit, including the one filed in California.

McDonald’s, of course, said at the time that it would fight the ruling.

And it did. As for the California lawsuit, McDonald’s filed more than 30,000 documents that allegedly proved it was not liable for the franchisee’s violations. On the flip side, the Smith Family produced 100,000 documents that claimed the corporation was a joint employer.

Reuters points out that last year, a judge ruled that McDonald’s was not the plaintiffs’ joint employer under federal and state law. But the judge noted that the company could still be held liable if employees thought McDonald’s was their employer.

Despite the recent settlement, a rep for the Golden Arches tells Reuters that the company maintains it is not a joint employer, and that it simply “entered into this mutually acceptable resolution to avoid the costs and disruption associated with continued litigation.”

According to the settlement, in addition to paying $3.75 million to settle the suit, McDonald’s must train the franchisee to use corporate software designed to ensure compliance with California’s employment laws.

 

[via Reuters]

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