Salazar et al v. McDonald's Corp. et al

Filing 193

ORDER by Judge Richard Seeborg granting in part and denying in part 87 Motion for Summary Judgment. (cl, COURT STAFF) (Filed on 8/16/2016)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 GUADALUPE SALAZAR, et al., 7 Case No. 14-cv-02096-RS Plaintiffs, 8 v. ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT 9 MCDONALD’S CORP., et al., 10 Defendants. United States District Court Northern District of California 11 12 I. INTRODUCTION 13 In 2010, defendants McDonald’s Corporation and McDonald’s USA, LLC (“McDonalds”) 14 15 entered into a franchise agreement with the Bobby O. Haynes Sr. and Carol R. Haynes Family 16 Limited Partnership (“Haynes”).1 The agreement allocated control of the franchised restaurants 17 along a fine contractual line, with McDonalds setting general operational standards and Haynes in 18 charge of personnel. Plaintiffs Guadalupe Salazar, Judith Zarate, and Genoveva Lopez are crew 19 members at Haynes-owned McDonalds franchise restaurants in Oakland, California. In this 20 putative class action, they seek to recover wages allegedly owed to them by Haynes and by 21 McDonalds as franchisor. McDonalds moves for summary judgment on the grounds it does not 22 jointly employ the named plaintiffs, given it does not retain or exert direct or indirect control over 23 their hiring, firing, wages, or working conditions. Viewing the undisputed evidence in the light most favorable to plaintiffs, McDonalds did 24 25 not retain or exert direct or indirect control over plaintiffs’ hiring, firing, wages, hours, or material 26 1 27 28 This partnership is composed of Bobby Haynes, Sr., Carol O. Haynes, and Michele HaynesWatts. Bobby Haynes, Sr.’s children—Bobby Haynes, Jr., Kimberly Keeton, and Melanie Pomales—work for the partnership. See Haynes Sr. Dep. 15:2–17:5. 1 working conditions. Nor did McDonalds suffer or permit plaintiffs to work, engage in an actual 2 agency relationship, participate in a conspiracy, or aid and abet the alleged wage and hour 3 violations. Summary judgment for McDonalds therefore is warranted as to those legal theories. 4 The motion for summary judgment also will be granted as to plaintiffs’ negligence claim. The 5 motion must be denied in part, however, because plaintiffs’ Labor Code claims may proceed under 6 an ostensible agency theory.2 II. BACKGROUND3 7 8 McDonalds operates a system of restaurants that prepare, package, and sell a limited menu 9 of value-priced foods. Like others in the industry, McDonalds adopted a franchise business model to drive the expansion of its products and services from coast to coast. Steinhilper Decl. ¶¶ 6–7. 11 United States District Court Northern District of California 10 In 2010, McDonalds and Haynes entered into a franchise agreement permitting Haynes to operate 12 restaurants in accordance with the “McDonald’s System.” Id. Exs. A, B. Haynes ultimately 13 acquired eight McDonalds franchises in Oakland and San Leandro, California. Id. Plaintiffs Guadalupe Salazar, Judith Zarate, and Genoveva Lopez are crew members at 14 15 McDonalds franchise restaurants operated by Haynes. On March 12, 2014, on behalf of 16 themselves and a putative class, they brought suit to recover wages McDonalds allegedly failed to 17 pay them in violation of California law. See Dkt. No. 1. They aver, among other things, managers 18 edit or delete time recorded by the punch-in and punch-out system, require off-the-clock work, and 19 fail to pay meal period, rest period, and mandated overtime compensation. First Amended 20 Complaint (“FAC”) ¶ 150. Plaintiffs specifically assert various claims under the California Labor 21 Code as well as for negligence, violation of the Private Attorneys General Act (“PAGA”), Labor 22 Code §§ 2698 et seq., and violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & 23 24 25 26 27 2 The motion will also be denied as to the derivative claims under the Private Attorneys General Act (“PAGA”), Labor Code §§ 2698 et seq., California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq., and California Code of Civil Procedure § 1060, none of which were directly addressed by the parties. 3 The background section provides a general overview of the dispute. A more detailed analysis of the evidentiary record appears in the discussion below. 28 CASE NO. 2 14-cv-02096-RS 1 2 Prof. Code §§ 17200 et seq. In May 2016, the parties stipulated to dismissal of McDonald’s Restaurants of California, 3 Inc. Dkt. No. 86. The remaining defendants—McDonald’s Corporation and McDonald’s USA, 4 LLC—moved for summary judgment on plaintiffs’ claims the same day. Dkt. No. 87. III. LEGAL STANDARD 5 6 Summary judgment is proper “if the pleadings and admissions on file, together with the 7 affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 8 party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The purpose of summary 9 judgment “is to isolate and dispose of factually unsupported claims or defenses.” Celotex v. Catrett, 477 U.S. 317, 323–24 (1986). The moving party “always bears the initial responsibility 11 United States District Court Northern District of California 10 of informing the district court of the basis for its motion, and identifying those portions of the 12 pleadings and admissions on file, together with the affidavits, if any which it believes demonstrate 13 the absence of a genuine issue of material fact.” Id. at 323 (citations and internal quotation marks 14 omitted). If it meets this burden, the moving party is then entitled to judgment as a matter of law 15 when the non-moving party fails to make a sufficient showing on an essential element of the case 16 with respect to which he bears the burden of proof at trial. Id. at 322–23. 17 The non-moving party “must set forth specific facts showing that there is a genuine issue 18 for trial.” Fed. R. Civ. P. 56(e). The non-moving party cannot defeat the moving party’s properly 19 supported motion for summary judgment simply by alleging some factual dispute between the 20 parties. To preclude the entry of summary judgment, the non-moving party must bring forth 21 material facts, i.e., “facts that might affect the outcome of the suit under the governing law.” 22 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “Factual disputes that are irrelevant or 23 unnecessary will not be counted.” Id. The opposing party “must do more than simply show that 24 there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith 25 Radio, 475 U.S. 574, 588 (1986). 26 27 The court must draw all reasonable inferences in favor of the non-moving party, including questions of credibility and of the weight to be accorded particular evidence. Masson v. New 28 CASE NO. 3 14-cv-02096-RS 1 Yorker Magazine, Inc., 501 U.S. 496 (1991) (citing Anderson, 477 U.S. at 255); Matsushita, 475 2 U.S. at 588 (1986). It is the court’s responsibility “to determine whether the ‘specific facts’ set 3 forth by the nonmoving party, coupled with undisputed background or contextual facts, are such 4 that a rational or reasonable jury might return a verdict in its favor based on that evidence.” T.W. 5 Elec. Serv. v. Pac. Elec. Contractors, 809 F.2d 626, 631 (9th Cir. 1987). “[S]ummary judgment 6 will not lie if the dispute about a material fact is ‘genuine,’ that is, if the evidence is such that a 7 reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. 8 However, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the 9 non-moving party, there is no ‘genuine issue for trial.’” Matsushita, 475 U.S. at 587. The 2010 amendments to Rule 56 clarified a party may request summary judgment “not 10 United States District Court Northern District of California 11 only as to an entire case but also as to a claim, defense, or part of a claim or defense.” Fed. R. 12 Civ. P. 56 advisory committee’s note to 2010 amendments. Courts may therefore dispose of less 13 than an entire case or claim by granting what Rule 56 now refers to as partial summary judgment. 14 IV. DISCUSSION The California Labor Code imposes the duty to pay minimum wages only upon employers. 15 16 Martinez v. Combs, 49 Cal. 4th 35, 49 (2010). Accordingly, McDonalds is potentially liable for 17 the asserted wage and hour claims only if it employs the named plaintiffs.4 McDonalds asserts it 18 does not employ the Haynes workers because it does not retain or exert direct or indirect control 19 over their hiring, firing, wages, or working conditions. Plaintiffs insist McDonalds’ contractual 20 and economic power, coupled with its regular monitoring of Haynes’ compliance with its 21 standards, enables McDonalds to maintain operational control over all relevant workplace 22 conditions. At bottom, the Franchise Agreement belies the first component of plaintiffs’ 23 argument, and the record belies the rest. McDonalds’ operating standards protect brand identity 24 and integrity, but exclude hiring, firing, and other personnel matters. 25 4 26 27 California courts have not resolved the scope of Martinez’s application to wage and hour claims arising outside of section 1194 of the Labor Code. See Johnson v. Serenity Transp., Inc., 141 F. Supp. 3d 974, 995–96 (N.D. Cal. 2015). Courts have applied Martinez despite this uncertainty, as will be done here. See id. at 996 (collecting cases). 28 CASE NO. 4 14-cv-02096-RS 1 Plaintiffs’ negligence claim also falls short under California’s “new right-exclusive 2 remedy” doctrine. See Rojo v. Kliger, 52 Cal. 3d 65, 79 (1990). Plaintiffs do raise a triable issue 3 regarding the existence of an ostensible agency relationship, and thus the motion for summary 4 judgment will be granted in part and denied in part. 5 A. Joint Employer Liability 6 As a preliminary matter, the parties dispute the authority applicable to the determination of 7 joint employer liability. They agree on one point—Martinez v. Combs, 49 Cal. 4th 35 (2010), 8 supplies the analytical framework. They part company over the relevance of Patterson v. 9 Domino’s Pizza, LLC, 60 Cal. 4th 474 (2014). 10 In Martinez, the California Supreme Court considered whether three seasonal agricultural United States District Court Northern District of California 11 workers directly employed by a strawberry farmer could hold liable for wage violations two 12 produce merchants through whom the farmer sold strawberries. 49 Cal. 4th at 42. The court first 13 found the term “employ” has three alternative definitions: “(a) to exercise control over the wages, 14 hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a 15 common law employment relationship.” Martinez, 49 Cal. 4th at 64. 16 It then investigated the connections between the farmer, the merchants, and the agricultural 17 workers, and concluded the merchants did not employ the workers under any of these definitions. 18 Id. at 68–77. On the control side of the equation, the court noted the merchants could decide the 19 amount of the advance paid to the farmer, and thereby indirectly control the farmer’s ability to pay 20 his workers. Id. at 71–72. Moreover, “[b]y ceasing to buy strawberries,” the merchants could 21 “force[] [the farmer] to lay off workers or to divert their labor to other projects.” Id. at 69. Yet 22 “any substantial purchaser of commodities might force similar choices on a supplier by 23 withdrawing its business,” so “[s]uch a business relationship, standing alone, d[id] not transform 24 the purchaser into the employer of the supplier’s workforce.” Id. at 70. 25 Next, pursuant to the contract, the court noted merchants regularly sent field 26 representatives to communicate with the workers and confirm the crops were of the quality 27 required for purchase, marketing, and sale under the merchants’ labels. Id. at 45–46. The court 28 CASE NO. 5 14-cv-02096-RS 1 found these activities did not transform the merchants into the workers’ joint employers because 2 there was no evidence the workers “viewed the field representatives as their supervisors or 3 believed they owed their obedience to anyone but [the farmer] and his foremen.” Id. at 76. In 4 other words, the farmer alone employed the workers because he “decided which fields to harvest 5 on any given day,” id. at 43, “hired and fired his employees, trained them when necessary, told 6 them when and where to report to work, when to start, stop and take breaks, provided their tools 7 and equipment, set their wages, paid them, handled their payroll and taxes, and purchased their 8 workers’ compensation insurance.” Id. at 45. While plaintiffs would stop with the decision in Martinez and ignore the analysis in 10 Patterson as inapposite, a distorted view of operative law would be the result. In Patterson, issued 11 United States District Court Northern District of California 9 four years after Martinez, the California Supreme Court decided the question: “whether a 12 franchisor may be considered an ‘employer’ who is vicariously liable for torts committed by 13 someone working for the franchisee.” 60 Cal. 4th at 492. The decision is instructive because it 14 elucidates the common law definition of employment in the franchisor context, id. at 499, and the 15 common law definition is incorporated as a component of the test articulated in Martinez. Not just 16 that, the opinion focuses on the idiosyncracies of the franchising relationship, and denigrates 17 reliance on the court’s older decisions, “none of which concerned franchising.” Id. at 493. 18 The plaintiff in Patterson was harassed by her supervisor while working for a Domino’s 19 franchisee, and argued the franchisor was vicariously liable for the workplace harassment. Id. at 20 477. The court concluded the “imposition and enforcement of a uniform marketing and 21 operational plan cannot automatically saddle the franchisor with responsibility for employees of 22 the franchisee.” Id. Instead, the franchisor must “exhibit the traditionally understood 23 characteristics of an ‘employer’ or ‘principal;’ i.e., it has retained or assumed a general right of 24 control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day- 25 to-day aspects of the workplace behavior of the franchisee’s employees.” Id. Thus, “the mere fact 26 that the franchisor has reserved the right to require or suggest uniform workplace standards 27 intended to protect its brand, and the quality of customer service, at its franchised locations is not, 28 CASE NO. 6 14-cv-02096-RS 1 standing alone, sufficient to impose ‘employer’ or ‘principal’ liability on the franchisor for 2 statutory or common law violations by one of the franchisee’s employees toward another.” Id. at 3 498 n.21. Applying this standard, the court observed the franchise agreement permitted use of the 5 “Domino’s System” and required compliance with a separate Managers Reference Guide, id. at 6 484, which prescribed detailed standards and procedures, see id. at 478. “These standards were 7 vigorously enforced through representatives of the franchisor who inspected franchised stores.” 8 Id. at 478. Stores were rated on “customer orders, food preparation, product packaging, employee 9 uniforms, and store cleanliness.” Id. at 486. Domino’s also provided “an orientation program for 10 new employees on the store’s computer system, i.e., the ‘PULSE’ system,” id. at 482, which was a 11 United States District Court Northern District of California 4 “comprehensive sales and accounting program that Domino’s required franchisees to buy and use 12 in their stores,” id. at 482 n.2. As a practical matter, the franchisee felt he always had to say “yes” 13 to Domino’s representatives, id. at 485, as franchisees who did not follow the suggestions were 14 “out of business very quickly,” id. at 506. 15 On the other hand, the contract “described the parties as ‘independent contractors,’ 16 regardless of any training or support on Domino’s part.” Id. at 484. It also released Domino’s 17 from liability for any damages to any person or property arising directly or indirectly out of the 18 operation of the franchise. Id. The contract further stated the parties had no principal-agent 19 relationship, and Domino’s disclaimed any relationship with the franchisee’s employees. Id. On 20 this record, the court found Domino’s “had no right or duty to control employment or personnel 21 matters for [the franchisee].” Id. at 501. 22 The “parties’ characterization of their relationship in the franchise contract is not 23 dispositive,” however, so the court proceeded to examine the record. Id. at 501. Perhaps most 24 important, there was “essentially uncontradicted evidence that the franchisee made day-to-day 25 decisions involving the hiring, supervision, and disciplining of his employees.” Id. at 478. The 26 record also revealed the franchisee “imposed discipline consistent with his own personnel policies, 27 declined to follow the ad hoc advice of the franchisor’s representative[s], and neither expected nor 28 CASE NO. 7 14-cv-02096-RS 1 sustained any sanction for doing so.” Id. at 479 (emphasis added). As “Domino’s lacked the 2 general control of an ‘employer’ or ‘principal’ over relevant day-to-day aspects of the employment 3 and workplace behavior of the [franchisee’s] employees,” id. at 499, the court concluded there was 4 “no basis on which to find a triable issue of fact that an employment or agency relationship 5 existed,” id. at 503. Plaintiffs correctly observe Patterson involved a claim under California’s Fair 6 7 Employment and Housing Act. The franchisor’s liability, however, depended on whether it was 8 an “employer” of the franchisee’s employees, which was examined using “traditional common law 9 principles of agency and respondeat superior.” Id. at 499. Given these principles supply the “proper analytical framework . . . for franchising generally,” it is appropriate to look to 11 United States District Court Northern District of California 10 Patterson’s analysis for guidance. Id. 12 B. Joint Employer Status Under Martinez Prong 1 13 Under prong one of the Martinez three prong definition, an entity employs a worker if it 14 “directly or indirectly, or through an agent or any other person . . . exercises control over the[ir] 15 wages, hours, or working conditions.”5 IWC Order § 2; Martinez, 49 Cal. 4th at 64. The 16 strawberry farmer in Martinez supplies helpful guidance for applying this standard. Under the 17 terms of his contract, he alone employed his workers, and in practice, he “decided which fields to 18 harvest on any given day,” id. at 43, “hired and fired his employees, trained them when necessary, 19 told them when and where to report to work, when to start, stop and take breaks, provided their 20 21 22 23 24 25 26 27 5 In Ochoa v. McDonald’s Corporation, 133 F. Supp. 3d 1228 (2015)—a case virtually identical to this one—the court observed “this language is potentially quite broad in scope,” but found “California courts have circumscribed it by denying employer liability for entities that may be able to influence the treatment of employees but lack the authority to directly control their wages, hours or conditions.” Id. at 1233 (emphasis added). Plaintiffs insist Ochoa erred by limiting “employer” to entities with “authority to directly control the [workers’] wages, hour or conditions” and in finding it “dispositive” that the franchisee made the final hiring, firing, wage, and staffing decisions, without regard to the franchisor’s involvement and indirect control. Opp’n at 3:19 n.4. In any event, the court in Ochoa proceeded to examine the aspects of indirect control highlighted by the plaintiffs. See, e.g., Ochoa, 133 F. Supp. 3d at 1236 (“[I]t is clear that McDonald’s has the ability to exert considerable pressure on its franchisees.”). It simply found them insufficient in light of the examples provided in Martinez and Patterson. See id. (rejecting arguments based on “McDonald’s strength as a franchisor”). 28 CASE NO. 8 14-cv-02096-RS 1 tools and equipment, set their wages, paid them, handled their payroll and taxes, and purchased 2 their workers’ compensation insurance,” id. at 45. 3 Plaintiffs set forth a great deal of evidence in an attempt to distinguish this case from 4 Martinez. They argue principally that McDonalds retains a contractual right of control, and 5 indirectly controls working conditions by articulating optional standards and subsequently 6 conducting graded visits. At the end of the day, however, several crucial facts cannot reasonably 7 be disputed: (1) McDonalds did not directly or indirectly retain the right to control employment or 8 personnel matters at the Haynes restaurants; (2) McDonalds is not involved in hiring Haynes 9 employees; (3) McDonalds is not involved in disciplining Haynes employees; (4) McDonalds is not involved in setting work schedules or dispensing specific work assignments; (5) McDonalds is 11 United States District Court Northern District of California 10 not involved in determining when to provide rest breaks or meal periods; (6) McDonalds does not 12 set the rates of pay or dispense pay to Haynes employees; (7) restaurant managers oversee Haynes 13 employee training; (8) Haynes runs its own orientations; (9) Haynes is free to reject (and did 14 reject) business advice it receives from McDonalds consultants; (10) plaintiffs went to Haynes 15 with questions and concerns about their jobs; and (11) Haynes, not McDonalds, purchased 16 workers’ compensation insurance. In light of these facts, as discussed in detail below, and the 17 guidance provided in Martinez, McDonalds did not exercise direct or indirect control over 18 plaintiffs’ wages, hours, or working conditions. 19 1. Franchise Agreement 20 The parties mutually agree Haynes is an “independent contractor responsible for all 21 obligations and liabilities of, and for all loss or damage to, the Restaurant and its business.” 22 Franchise Agreement (“FA”) § 16. The contract also states “[Haynes] and McDonald’s are not 23 and do not intend to be partners, associates, or joint employers in any way and McDonald’s shall 24 not be construed to be jointly liable for any acts or omissions of [Haynes] under any 25 circumstances.” Id. (emphasis added). It further provides Haynes “shall have no authority, 26 express or implied, to act as agent of McDonald’s.” Id. Finally, the only contractual provisions 27 directed at labor issues require franchisees to “employ adequate personnel,” FA § 12(g), purchase 28 CASE NO. 9 14-cv-02096-RS 1 workers’ compensation insurance, id. §§ 17(a), (c), and to cause their employees “to (i) wear 2 uniforms of such color, design, and other specifications as McDonald’s may designate from time 3 to time; (ii) present a neat and clean appearance; and (iii) render competent and courteous service 4 to Restaurant customers,” id. § 12(h). Applying Martinez, mindful of Patterson’s gloss, such 5 policies are not problematic. Plaintiffs’ contention that the agreement does not preclude the franchisor’s direct 6 7 involvement in personnel decisions is inconsistent with the undisputed facts. The agreement 8 incorporates explicitly the McDonalds business manuals, and thus the Operations and Training 9 (“O&T”) manual. FA § 4. That manual provides that policies related to personnel practices, crew management and scheduling, and training are optional for franchisees. The “People” section 11 United States District Court Northern District of California 10 states: “Franchisees are independent employers who make their own decisions and policies 12 regarding employment-related matters pertaining to their employees. Franchisees may choose to 13 use part, all, or none of the contents in these materials that will be helpful to them in operating 14 their own McDonald’s restaurants.” Steinhilper Decl. Ex. C. The “Training” section provides: 15 “Franchisees are independent employers and are solely responsible for hiring, assigning roles and 16 responsibilities to, training, and advancing their employees. Franchisees should establish their 17 own policies and may choose the information from this chapter that will be helpful to them in 18 operating their business.” Id. Ex. D. The “Crew Management and Scheduling” chapter provides: 19 “Subsidiaries, affiliates, and licensees establish their own human resources policies and may 20 choose the information from this chapter that will be helpful to them in operating their 21 businesses.” Id. Ex. E. In short, the franchise agreement is clunkier than in Martinez, as 22 franchisees must “adopt and use” a manual that provides them with complete autonomy over 23 personnel decisions. Nonetheless, it strongly evinces Haynes has complete discretion over “the 24 selection, hiring, firing, supervision, assignment, direction, setting of wages, hours, and working 25 conditions of [its] employees,”6 Martinez, 49 Cal. 4th at 77, and plaintiffs offer no facts to the 26 27 6 Notably, a related manual, the ROIP People Self-Assessment Guide, states “[o]wner/operators are responsible for all employment related matters in their restaurant(s) and exercise complete 28 CASE NO. 10 14-cv-02096-RS 1 contrary. Next, plaintiffs submit the agreement establishes a generic right to control the terms and 2 3 conditions of employment through compliance with the “McDonald’s System.” The contract 4 requires “strict adherence to McDonald’s standards and policies as they exist now and as they may 5 be from time to time modified.” FA § 1(d). In plaintiffs’ eyes, this statement means McDonalds 6 can modify its manuals to revoke the autonomy of the franchisees, and in that sense it retains the 7 right to control the material working conditions of their employees. This thread is too thin to establish liability as a joint employer. In Martinez, the court 8 9 assumed without deciding “the right to exercise control over the manner in which work is performed is sufficient to prove the existence of an employment relationship.” Id. at 76. It then 11 United States District Court Northern District of California 10 found the argument unavailing because the contract did not explicitly give the merchants the right 12 to direct the farmer’s employees, nor did anyone believe the merchants had any such right. Id. at 13 76–77 (distinguishing S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341 14 (1989)). The same is true here—even if McDonalds retains the right to update its business 15 manuals, the agreement still lacks any contractual right authorizing McDonalds to direct the 16 Haynes employees in their work.7 It also is worth noting Patterson insists analysis of the 17 franchise relationship must respect “contemporary realities,” and periodic updates to manuals 18 provide a continuous means of “protecting the trademarked brand.” 60 Cal. 4th at 490. Thus, “the 19 mere fact that the franchisor has reserved the right to require or suggest uniform workplace 20 standards . . . is not, standing alone, sufficient to impose ‘employer’ or ‘principal’ liability on the 21 franchisor.”8 Id. at 498 n.21 (emphasis added). Finally, plaintiffs argue more specifically the agreement requires Haynes to employ 22 23 24 25 26 27 control over the work, working conditions, and terms and conditions of employment for employees in their restaurants.” Steinhilper Decl. Ex. F. 7 As detailed below, the factual record also belies the direct or indirect exercise of any such right. Id. at 71–72. 8 Plaintiffs’ contrary authority is not from California or pre-dates both Martinez and Patterson. 28 CASE NO. 11 14-cv-02096-RS 1 “adequate personnel,” and states correspondingly it is a material breach to spurn any standard 2 prescribed by the McDonalds System. This vague operational obligation clearly is directed 3 toward protecting “the quality of customer service,” Patterson, 60 Cal. 4th at 479, and in any 4 event does not demonstrate the retention of control over day-to-day personnel matters. That 5 McDonalds theoretically would have to terminate the agreement to get its way only emphasizes 6 that fact.9 Further, in light of Haynes’ autonomy, McDonalds disclaims inadequate staffing would 7 even constitute a material breach. The record supports that assertion: Haynes staffed its 8 restaurants inadequately in practice, yet neither expected nor sustained any sanction for doing so. 9 Haynes, Sr. Dep. Ex. 3; Haynes, Jr. Dep. Ex. 33; Haynes, Sr. Dep. 203:16–205:22. At its core, the 10 franchise agreement does not afford McDonalds direct or indirect control over Haynes personnel. 2. Wages United States District Court Northern District of California 11 The record reflects Michele Haynes-Watts, with input from other Haynes employees, sets 12 13 the wages for all crew members at Haynes operated restaurants. Haynes-Watts Dep. 224:21– 14 225:10. Haynes also uses its own payroll provider, Haynes Jr. Dep. 255:4–22, to whom Haynes 15 employees transmit time record data for processing, Haynes-Watts Dep. 61:3–22. The payroll 16 provider formatted the checks and wage statements that go to Haynes employees, Haynes-Watts 17 Dep. 191:15–17, and only Haynes is listed as the employer on paystubs, Haynes-Watts Dep. Ex. 18 73–74, which are signed by Bobby Haynes, Senior, id. Much like the franchisee in Patterson, 19 Haynes further maintains its own bank accounts, see Haynes Jr. Dep. 264:9–11; Haynes-Watts 20 Dep. 225:23–226:5, and McDonalds lacks access to or control of Haynes’ payroll system and its 21 bank accounts, Haynes Jr. Dep. 262:24–264:11. Lastly, plaintiffs testified uniformly they spoke 22 only with Haynes managers about their wages. Lopez Dep. 66:1–67:5; Salazar Dep. 106:4– 23 107:15; Zarate Dep. 60:6–14. The inference fairly supported by this evidence is that McDonalds 24 does not exercise control over this domain. See also Haynes-Watts Dep. 225:8–10. 25 26 27 9 Termination is also akin to the merchants’ ability to withdraw their business, as detailed in Martinez, 49 Cal. 4th at 69–70, which in practice is not sufficient to constitute indirect control, even if it does permit influence. 28 CASE NO. 12 14-cv-02096-RS 1 Plaintiffs assert McDonalds exercises indirect control over Haynes employees’ 2 compensation by imposing reinvestment and financial viability standards, and dictating non-labor 3 costs, thereby limiting the amount Haynes can pay while remaining profitable. As detailed above, 4 this precise type of argument was found wanting in Martinez. 49 Cal. 4th at 71 (rejecting 5 argument that “contractual relationship” permitted merchants to exert “indirect control” over 6 employees’ wages). 3. Hiring, Firing, and Discipline 7 8 9 The general managers make the hiring decisions in response to applications for employment, Haynes-Watts Dep. 220:21–221:4; Haynes Jr. Dep. 260:17–19, and Haynes employees alone conduct hiring interviews, Haynes-Watts Dep. 221:5–12; Keeton Decl. ¶ 4. The 11 United States District Court Northern District of California 10 general managers also conduct employee performance evaluations, Haynes-Watts Dep. 221:25– 12 226:12, and are responsible for imposing employee discipline when warranted, Haynes-Watts 13 Dep. 222:13–223:9. 14 Zarate testified she was interviewed and hired by a Haynes restaurant supervisor. Zarate 15 Dep. 24:2–9. Likewise, Salazar attests she was interviewed by Michele Haynes, and then 16 subsequently hired. Salazar Dep. 35:2–36:5. Lopez was interviewed by Bobby Haynes Sr. at the 17 San Leandro office, and later was told by her restaurant manager she got the job. Lopez Dep. 18 39:5–43:12. As to discipline, both Salazar and Zarate recalled incidents in which they received 19 warnings from their restaurant managers, see Salazar Dep. 201:1–24; Zarate Dep. 95:17–98:22, 20 and Salazar sometimes discussed written warnings she received with her manager, Zarate Dep. 21 95:17–98:22. This record does not reflect McDonald’s exercises control over hiring or employee 22 discipline. 23 McDonalds’ business consultants evaluate Haynes on its use of an online tool known as 24 “Hiring to Win.” Haynes Sr. Dep. 145:17–146:1. Through that website, individuals can apply for 25 employment at a Haynes restaurant, even though the screening questions were written by 26 McDonalds, not Haynes. Haynes-Watts Dep. 172:2–12. The program separates applicants into 27 three categories—green, yellow, or red. Virtually all of the McDonalds restaurants in the region 28 CASE NO. 13 14-cv-02096-RS 1 utilize Hiring to Win. Gehret II Dep. Ex. 29. at HAYNES_260332. Given that fact, plaintiffs 2 argue a jury could find the program is mandatory, and that McDonalds thereby “influences” hiring 3 decisions at the Haynes restaurants. 4 The record belies that assertion. The Hiring to Win tool indisputably is an optional 5 resource made available to franchisees. See Haynes-Watts Dep. 171:15–20, 172:13–16; Haynes 6 Jr. Dep. 261:14–17. Haynes elects to use it, but receives only half of its applications through this 7 method. Id. 172:13–16. Additionally, Haynes does not send the applications to its managers with 8 the online tool’s assessments, id. 173:5–22, and does not use the interview guides, id. 174:10–15. 9 The record reflects interviews and hiring decisions are made by restaurant managers. Taken 10 United States District Court Northern District of California 11 12 together, these facts do not evince McDonalds exercises any actual control over employee hiring. 4. Software McDonalds requires Haynes to use a Point of Sale (“POS”) system to process and track 13 transactions, Lewis Dep. 44:7–11, and a proprietary program called the In Store Processor (“ISP”) 14 to open and close that system each day, id. 60:7–61:18, 63:18–22. The ISP has a number of 15 optional features that Haynes may elect to use, including software related to timekeeping, 16 discipline, scheduling, payroll, and restaurant inventory. Id. 63:9–22. See also Haynes Jr. Dep. 17 257:9–259:9. McDonalds also makes available a number of additional packages Haynes can 18 utilize to help run its business, including the e*Restaurant package, the Dynamic Shift Positioning 19 Tool (“DSPT”), and the Staffing, Scheduling & Positioning (“SSP”) tool. 20 While there is no dispute McDonalds does not require use of these programs for 21 scheduling, timekeeping, or wage and hour functions, plaintiffs submit “no economically rational 22 franchisee” would decline such usage given the costs and risks of alternative options. Opp’n at 23 14:4–7. McDonalds audits restaurants with these programs in mind, see Taylor Decl. Ex. A, and 24 Haynes accordingly adopted many of these features. See, e.g., Haynes-Watts Dep. 50:18–51:6. 25 What is more, alleged programming errors in this optional software are driving the wage and hour 26 27 28 CASE NO. 14 14-cv-02096-RS 1 violations.10 Given McDonalds pressures franchisees to adopt the flawed software, and Haynes 2 relied on it to record employee time, Haynes-Watts Dep. 50:18–20, 55:13–15, 58:6–59:13, 60:5– 3 14, plaintiffs submit McDonalds exercises control over their material working conditions. California authority suggests the provision of such software does not convert a franchisor 4 5 into a joint employer, even when the programs allegedly give rise to putative wage and hour 6 violations. In Aleksick v. 7-Eleven, Inc., 205 Cal. App. 4th 1176 (2012), the California Court of 7 Appeal applied Martinez in a situation where a franchisor, 7-Eleven, contractually required its 8 franchisee to use 7-Eleven’s payroll service. See id. at 1190–91. Pursuant to that system, 9 franchisee employees used an In Store Processor to record their time. Id. at 1181. The franchisee then submitted to 7-Eleven the hourly rate and number of hours worked by its employees each 11 United States District Court Northern District of California 10 week. Id. at 1190. At that point, 7-Eleven applied its “payroll method,” akin to the software 12 glitches here, which converted the time worked to a total number of minutes, but truncated the 13 number beyond the hundredth decimal place. Id. at 1181. Plaintiffs argued this truncation method 14 deprived them of the mandated minimum wage, and established 7-Eleven’s control over their 15 wages and hours to support the imposition of vicarious liability. The court concluded to the 16 contrary as to all three definitions of employment described in Martinez, given “7-Eleven 17 exercised no control over [the franchisee’s] employees, including their hiring or firing, rate of pay, 18 work hours and conditions.” Id. at 1190. See also Futrell v. Payday Cal., Inc., 190 Cal. App. 4th 19 1419 (2010) (declining to find payroll company is a joint employer liable for allegedly failing to 20 pay overtime). It is likewise worth noting that Patterson involved a “comprehensive sales and 21 22 23 24 25 26 27 10 The ISP scheduling application establishes shift lengths and crew schedules based on projected customer transactions and calculations of how many crew will be needed throughout the day. See Lewis I Dep. 206:2–9; Lewis II Dep. 100:14–101:13, 266:17–267:2. Similarly, the DPST determines where crew members should be positioned throughout their shifts and what duties they should perform. Stein Dep. 194:7–23, 197:19–198:6. Importantly, the labor law settings identify which precise shifts require meal periods and rest breaks. According to plaintiffs, however, the scheduling function does not schedule any rest breaks, any required second meal periods, and throws off the scheduling of subsequent meal periods when the first one is incorrectly set. Plaintiffs also insist the ISP does not flag when individuals are owed premium pay for missed and late breaks, and incorrectly calculates overtime by assigning all hours for overnight shifts to a single day. 28 CASE NO. 15 14-cv-02096-RS 1 accounting program that Domino’s required franchisees to buy and use in their stores.” 60 Cal. 2 4th at 482 n.2. Yet that mandated program did not establish Domino’s control over wages, hours, 3 or working conditions. Here, while the record reflects McDonalds pressures franchisees to use the 4 optional scheduling and timekeeping functions, that alone does not establish the requisite control 5 in light of the above authority. 5. Training 6 7 New crew members receive an orientation packet compiled by Haynes, though some of its 8 content may have originated with McDonalds. Haynes Sr. Dep. 146:11–18. A Haynes employee 9 then conducts an orientation at the San Leandro office. Haynes-Watts Dep. 22:4–23:11. Plaintiffs’ actual experiences onboarding with Haynes confirm this framework. See, e.g., Salazar 11 United States District Court Northern District of California 10 Dep. 55:9–57:17; Lopez Dep. 84:7–10. 12 Once on the job, new employees are trained by managers and crew members. See, e.g., 13 Zarate Dep. 83:19–22; Haynes-Watts Dep. 21:9–10. For instance, Salazar and Lopez testified 14 their managers arranged for them to watch training videos. Salazar Dep. 66:10–16; 169:12– 15 170:23; Lopez Dep. 81:4–86:12. Lopez further explained her manager took her to the kitchen to 16 show her how everything worked. Lopez Dep. 83:1–4. She started with french fries, hashbrowns, 17 and meat, then moved to food preparation, which involved yogurt, salad, cheese, and various 18 breakfast ingredients. Lopez Dep. 83:9–86:17. Plaintiffs also testified managers and employees 19 trained them on how to record their hours, told them about meal and rest break policies, and 20 showed them how to prepare new products. Lopez Dep. 102:21–25, 192:24–193:23; Salazar Dep. 21 171:11–18; Zarate Dep. 82:17–83:9. This record reflects training was handled by Haynes 22 employees. 23 Plaintiffs assert McDonalds dictates the contents of the orientation packet and videos, and 24 through its consultants, directly trains managers and other crew members. The latter topic is 25 addressed below, and the former is not problematic. In Martinez, the merchants’ representatives 26 explained to the farmer and his foremen how packing was to be done, and the farmer and his team 27 then passed that training down to the agricultural workers. 49 Cal. 4th at 76. This basic 28 CASE NO. 16 14-cv-02096-RS 1 orientation did not cause the court pause, nor does it raise a triable issue here. See Ochoa, 133 F. 2 Supp. 3d at 1237 (noting these aspects are not the type required to find McDonalds exercised 3 control over wages, hours or working conditions). 4 Plaintiffs also point out McDonalds requires Haynes managers to undergo training on 5 wage and hour issues, Taylor Decl. Ex. B, which likely filters down to restaurant employees 6 notwithstanding Haynes’ discretion over personnel matters. Once again, such training, though an 7 influence, does not reflect indirect control over plaintiffs’ working conditions because McDonalds 8 has no right or ability to participate in the decision-making process after the training is completed. 9 10 6. Supervision and Working Environment The general managers determine the employees’ work schedules based on experience, United States District Court Northern District of California 11 store hours, and expected sales volume. Haynes Jr. Dep. 259:11–260:14. They also decide when 12 to permit employees to take their meal and rest breaks. Haynes-Watts Dep. at 223:10–224:7. The 13 managers further determine the specific work assignments that are given to the employees in each 14 store, Haynes Jr. Dep. at 261:21–262:5, and only the managers (either restaurant or swing) may 15 edit a crew member’s time records. Id. at 262:13–18. Uniform requirements, Haynes-Watts Dep. 16 225:11–20, employee evaluations, Haynes-Watts Dep. 221:25–226:12, and discipline are also 17 handled by the managers, Haynes-Watts Dep. 222:13–223:9. Plaintiffs confirmed managers set 18 work hours, Zarate Dep. 55:8–11; Salazar Dep. 95:18–21; Lopez Dep. 71:20–25, assign them 19 duties, Lopez Dep. 54:7–12; Salazar Dep. 98:9–12; Zarate Dep. 58:13–16, and tell them when 20 they are needed, Zarate Dep. 75:3–8; Salazar Dep. 147:17–21; Lopez Dep. 77:2–16. Requests for 21 accommodations, see, e.g., Lopez 74:14–17, and questions about the job are also addressed only to 22 Haynes employees, see, e.g., Salazar Dep. 188:19–23; Zarate Dep. 125:5–17. This record reflects 23 Haynes, not McDonalds, is responsible for employee supervision. 24 Plaintiffs point out McDonalds provides franchisees with optional resources like 25 workplace positioning guides, then grades them on their uptake, allowing McDonalds to exercise 26 “effective” control over restaurant operations. They also note every restaurant must be managed 27 by a graduate of McDonalds-run Hamburger University, Dubois Dep. 230:9–13, and argue 28 CASE NO. 17 14-cv-02096-RS 1 McDonalds forced Haynes to designate “department managers” as part of the Restaurant 2 Department Manager (“RDM”) initiative. The undisputed evidence, however, reflects RDM was 3 optional, and Haynes in fact ultimately spurned it. Haynes Sr. Dep. 93:6–15, 106:4–7; Haynes Jr. 4 Dep. 148:10–150:8; Haynes-Watts Dep. 109:3–5. Further, the adoption and monitoring of 5 customer service metrics does not give rise to a triable issue of fact. See Martinez, 49 Cal. 4th at 6 76 (merchant set packing standard, taught it to workers through representatives, and enforced 7 standard, but did not thereby “supervise[] or exercise[] control over [farmer’s] employees”); 8 Patterson, 60 Cal. 4th at 498 n.21 (adoption and enforcement of “uniform workplace standards 9 intended to protect [franchisor’s] brand” insufficient to support vicarious liability). 10 United States District Court Northern District of California 11 7. Consultants McDonalds is contractually obligated to consult with Haynes in connection with the 12 operation of the restaurants. FA § 3. These consultants provide marketing and general business 13 advice, and ensure compliance with McDonalds’ contractual standards. McDonalds readily 14 admits consultants also evaluate franchisees against its National Franchising Standards (“NFS”), a 15 set of metrics McDonalds uses to make decisions on whether to continue or expand a franchising 16 relationship. The NFS provide they “are internal guidelines which McDonald’s may apply, 17 modify or eliminate as it deems appropriate. They are not intended and do not create or modify 18 any contract rights or obligations. As always, those rights and obligations are determined only by 19 McDonald’s signed, written Franchise Agreements.” McRee Decl. Ex. EE. In other words, “[t]he 20 Standards are not intended to, and do not necessarily address whether an Owner/Operator is in 21 compliance with the Franchise Agreement,” id., though eligibility for “growth and rewrite”—the 22 renewal of the relationship—appears to require compliance with the franchising standards, Haynes 23 Sr. Dep. 64:17–21. 24 Undoubtedly, McDonalds can exert significant economic pressure on Haynes through 25 these reviews, see Slater-Carter Decl. ¶ 9, but the consultants themselves are limited to providing 26 advice about the operation of the restaurants. That is, consultants do not “have any authority in 27 [the Haynes] business whatsoever.” Haynes Jr. Dep. 252:11–16. They cannot make staffing 28 CASE NO. 18 14-cv-02096-RS 1 decisions, id. 251:25–252:16, access crew schedules, id. 254:2–4, or obtain payroll reports, id. 2 254:18–255:2. Haynes can reject any business advice it receives from McDonalds consultants, id. 3 250:3–23, and has in fact rejected McDonalds’ advice in the past, id. 250:25–251:24. 4 Plaintiffs submit the consultants’ instructions amount to the exercise of control, but that 5 proposition was rejected squarely both in Martinez and Patterson. In Martinez, field 6 representatives showed workers how to pack, checked “packed containers as workers brought 7 them from the field,” and “sp[oke] directly to the workers, pointing out mistakes in packing.” 49 8 Cal. 4th at 76. There, as here, this conduct did not support the imposition of vicarious liability 9 because the workers did not “view[] the field representatives as their supervisors or believe[] they owed their obedience to anyone but [the farmer] and his foremen.” Id. at 76. In Patterson, 11 United States District Court Northern District of California 10 Domino’s representatives “recommended changes in pricing and staffing levels,” “trained 12 franchisees when their doors first opened or when a new product was launched,” and “coach[ed] 13 franchisees and employees” on a host of different topics. 60 Cal. 4th at 486. The court found the 14 “enforcement of a uniform marketing and operational plan” was central to modern franchising, 15 and concluded such oversight did not subject a franchisor to vicarious liability in the absence of 16 control over “relevant day-to-day aspects of the workplace behavior of the franchisee’s 17 employees.” Id. at 478. Lastly, once again, Martinez said the ability to impose economic 18 pressure, standing alone, does not make the party who possesses that ability a joint employer. 19 Martinez, 49 Cal. 4th at 69–70 (finding “[s]uch a business relationship, standing alone, does not 20 transform the purchaser into the employer of the supplier’s workforce”). That McDonalds can 21 exert significant economic pressure is not enough to subject it to vicarious liability. 22 23 8. Property Ownership McDonalds owns the property it leases to Haynes for three of its restaurants, and is the 24 primary leaseholder for the other properties, which are subleased to Haynes. Gordon Decl. ¶ 11. 25 The Franchise Agreement also affords McDonalds the right to enter and take possession of the 26 premises in the event of a material breach of the contract so McDonalds can protect its goodwill. 27 FA § 20(a). Plaintiffs insist this arrangement allows McDonalds to exert control over the 28 CASE NO. 19 14-cv-02096-RS 1 premises, and thus indirectly to exercise control over the employees’ working conditions. In 2 Martinez, however, the farmer likewise leased two sites from one of the produce merchants, who 3 similarly retained a contractual “right to enter the leased property.” 49 Cal. 4th at 69. That facet 4 was not enough to persuade the court the merchants could exercise the requisite control. So too in 5 the present case. 6 In sum, the evidence in the record does not raise a triable issue of fact as to whether 7 McDonalds retained or exercised direct or indirect control over plaintiffs’ wages, hours, or 8 working conditions. Contractually, McDonalds did not retain the right to control personnel 9 matters at the Haynes restaurants. In practice, McDonalds exerts pressure, like the merchants in Martinez, because it theoretically can withdraw its business, but it cannot directly or indirectly set 11 United States District Court Northern District of California 10 wages, hire or fire, or regulate day-to-day working conditions. 12 C. Joint Employer Status Under Martinez Prong 2 13 Under the second test articulated in Martinez, an entity can be held liable as an “employer” 14 if it “suffer[s] or permit[s]” someone to work. 49 Cal. 4th at 64. The phrase stems from statutes 15 imposing liability on businesses who knew child labor was occurring, but failed to prevent it, 16 notwithstanding the absence of a common law employment relationship. Id. at 69. “[T]he basis of 17 liability is the defendant’s knowledge of and failure to prevent the work from occurring.” Id. at 18 70. For instance, “[a] proprietor who knows that persons are working in his or her business . . . 19 while being paid less than the minimum wage, clearly suffers or permits that work by failing to 20 prevent it, while having the power to do so.” Id. at 69 (emphasis added). Applying that standard, 21 Martinez found the merchants did not “suffer or permit” the plaintiffs to work even though they 22 benefitted indirectly from the agricultural workers. Id. at 70. The court reasoned the merchants 23 lacked “the power to prevent [the] plaintiffs from working,” given the farmer “had the exclusive 24 power to hire and fire his workers, to set their wages and hours, and to tell them when and where 25 to report to work.” Id. (emphasis added). The court noted “as a practical matter,” the merchants 26 might “have forced [the farmer] to lay off workers or to divert their labor to other projects.” Id. 27 Yet any purchaser of commodities could exert the same pressure, so that “business relationship, 28 CASE NO. 20 14-cv-02096-RS 1 standing alone,” was insufficient. Id. at 70. 2 Here, as in Martinez, Haynes alone possesses “the exclusive power to hire and fire [its] 3 workers, to set their wages and hours, and to tell them when and where to report to work.” Id. 4 McDonalds, like the merchants, can exert significant pressure through the franchising relationship, 5 but that feature, standing alone, simply is not enough to support vicarious liability. Accordingly, 6 McDonalds did not “suffer or permit” plaintiffs to work because it lacked the power to prevent 7 them from working. D. Joint Employer Status Under Martinez Prong 3 9 According to the third test articulated in Martinez, the term “engage” invokes a common 10 law employment relationship. 49 Cal. 4th at 64. Under the common law, “[t]he principal test of 11 United States District Court Northern District of California 8 an employment relationship is whether the person to whom service is rendered has the right to 12 control the manner and means of accomplishing the result desired.” Borello, 48 Cal. 3d at 350. 13 “What matters is whether the hirer ‘retains all necessary control’ over its operations.” Ayala v. 14 Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 531 (2014) (quoting Borello, 48 Cal. 3d at 15 357). “Perhaps the strongest evidence of the right to control is whether the hirer can discharge the 16 worker without cause.” Id. Courts also consider “several ‘secondary’ indicia of the nature of a 17 service relationship.”11 Borello, 48 Cal. 3d at 350. Of course, Patterson addressed the common law employment relationship in the 18 19 franchising context. It found “[t]he ‘means and manner’ test generally used by the Courts of 20 Appeal cannot stand for the proposition that a comprehensive operating system alone constitutes 21 22 23 24 25 26 27 11 These factors include the right to terminate at will, “whether the one performing services is engaged in a distinct occupation or business,” the “kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision,” the skill required in the particular occupation,” “whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work,” the “length of time for which the services are to be performed,” “the method of payment, whether by the time or by the job,” “whether or not the work is a part of the regular business of the principal,” and “whether or not the parties believe they are creating the relationship of employeremployee.” Borello, 48 Cal. 3d at 350–51. 28 CASE NO. 21 14-cv-02096-RS 1 the ‘control’ needed to support vicarious liability.”12 Patterson, 60 Cal. 4th at 497. Instead, the 2 franchisor must “retain[] or assume[] a general right of control over factors such as hiring, 3 direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace 4 behavior of the franchisee’s employees.” Id. at 478. Here, as discussed above, Haynes alone controls hiring, firing, wages, hours, and day-to- 5 6 day aspects of the workplace environment. Under Patterson, moreover, the standards and indirect 7 pressure plaintiffs identify is not enough to support vicarious liability in the franchising context. 8 See, e.g., 60 Cal. 4th at 485 (noting franchisee “felt he always had to say ‘yes’” to franchisor’s 9 representative, but ultimately rejecting vicarious liability). In sum, there is no triable issue under any one of the three prongs described in Martinez, and summary judgment must be granted in 11 United States District Court Northern District of California 10 favor of McDonalds as to that theory of liability. 12 E. Joint Employer Status Under “Ostensible Agency” Theory 13 There remains, however, a genuine issue of material disputed fact regarding the existence 14 of an ostensible agency relationship. “Ostensible agency exists where (1) the person dealing with 15 the agent does so with reasonable belief in the agent’s authority; (2) that belief is ‘generated by 16 some act or neglect of the principal sought to be charged,’ and (3) the relying party is not 17 negligent.” Ochoa, 133 F. Supp. 3d at 1239 (quoting Kaplan v. Coldwell Banker Residential 18 Affiliates, Inc., 59 Cal. App. 4th 741, 747 (1997)). 19 As a threshold matter, McDonalds invokes Patterson, which found “uniform workplace 20 standards” intended to protect the brand do not establish actual agency. 60 Cal. 4th at 497 n.21. 21 Given McDonalds’ uniforms, logos, and food packaging, without more, are insufficient to find 22 “true agency,” McDonalds insists they cannot support ostensible agency. This argument is 23 24 25 26 12 This was true because “a franchise contract consists of standards, procedures, and requirements that regulate each store for the benefit of both parties.” Patterson, 60 Cal. 4th at 497 (emphasis added). The approach “minimizes chain-wide variations that can affect product quality, customer service, trade name, business methods, public reputation, and commercial image.” Id. 27 28 CASE NO. 22 14-cv-02096-RS 1 compelling: “[a]nalysis of the franchise relationship” must heed “contemporary realities,” and 2 plaintiffs’ theory stands in tension with the trademark protections sanctioned by the court in 3 Patterson. 60 Cal. 4th at 478. Not just that, in the franchising context, ostensible agency has been 4 found in interactions generally involving non-employees who had isolated or short-term contact 5 with the defendants. See, e.g., Kaplan, 59 Cal. App. 4th at 744, 747–48 (individual client sued 6 real estate brokerage companies for fraud and breach of contract after investment fell through); 7 Kuchta v. Allied Builders Corp., 21 Cal. App. 3d 541, 544–45 (1971) (homeowners sued building 8 companies for fraud and breach of contract); Miller v. McDonald’s Corp., 150 Or. App. 274 9 (1997) (consumer sued McDonald’s after discovering foreign object in her food); but see Miller v. D.F. Zee’s, Inc., 31 F. Supp. 2d 792 (1998) (sexual harassment lawsuit involving Denny’s 11 United States District Court Northern District of California 10 employees). That distinction makes sense—third parties who, unlike plaintiffs, lack an ongoing 12 relationship with a franchisee must rely “on the appearance of agency arguably because they 13 ha[ve] no other knowledge of the actual relationship between the franchisee and the franchisor.” 14 Gray v. McDonald’s USA, LLC, 874 F. Supp. 2d 743, 752 (E.D. Tenn 2012). All of that said, 15 Patterson expressly declined to address ostensible agency. 60 Cal. 4th at 494 n.18 (“There is no 16 issue of ostensible agency in the present case.”). California courts also permit it even when 17 rejecting actual agency based on the same evidence.13 See Kaplan, 59 Cal. App. 4th at 747–48 18 (denying summary judgment on ostensible agency based on the “venerable name, Coldwell 19 Banker, the advertising campaign, [and] the logo” among other things). As there is no authority 20 foreclosing a finding of ostensible agency in the present context, plaintiffs will not be precluded as 21 a matter of law from raising the argument here. Looking at the record, there is considerable evidence, albeit subject to dispute, that 22 23 McDonalds caused plaintiffs reasonably to believe Haynes was acting as its agent. To begin, 24 plaintiffs uniformly declare they believed both they and Haynes worked for McDonalds. Salazar 25 26 27 13 Unlike the standards for true agency, which focus on the exercise of control, the ostensible agency inquiry looks at whether McDonald’s, through an act or omission, caused plaintiffs reasonably to believe Haynes was its agent. 28 CASE NO. 23 14-cv-02096-RS 1 Decl. ¶ 2; Zarate Decl. ¶ 2; Lopez Decl. ¶ 2. They also must wear McDonalds uniforms, prepare 2 and serve McDonalds food in McDonalds packaging, and greet customers by saying “Welcome to 3 McDonald’s.” See, e.g., Salazar Decl. ¶ 2(a). Plaintiffs’ managers, who were subject to training 4 by McDonalds and interacted regularly with McDonalds consultants, wore McDonalds’ uniforms, 5 and referred to themselves as “working for McDonald’s.” See, e.g., Salazar Decl. ¶¶ 2(b), (c). 6 Salazar and Lopez applied through a McDonalds website, which said they were seeking “a job 7 opportunity with McDonald’s.” Salazar Dep. 33:1–34:23; Salazar Decl. ¶ 2(f); Lopez Dep. 31:12– 8 25; Lopez Decl. ¶ 2(g). Zarate’s written application likewise was emblazoned with McDonalds’ 9 logos. Zarate Dep. 21:3–9 & Ex. 1. As noted above, McDonalds was responsible for some of the content contained in plaintiffs’ orientation materials, see Haynes Sr. Dep. 146:11–18, and 11 United States District Court Northern District of California 10 plaintiffs also received documents styled as “McDonald’s Store Policies.” Lopez Dep. Ex. 12. 12 Although Kimberly Keeton, a Haynes employee, attests she tells interviewees they are applying to 13 work for a franchisee, she did not interview Salazar, Lopez, or Zarate. Salazar Decl. ¶ 5; Zarate 14 Dep. 21:3–24:9; Lopez Decl. ¶ 4. Plaintiffs contend nobody ever told them McDonalds was not 15 their employer, Lopez Decl. ¶ 5; Zarate Decl. ¶ 2(g); Salazar Decl. ¶ 6, and plaintiffs themselves 16 had direct interaction with McDonalds’ business consultants, see, e.g., Salazar Dep. 111:2–16; 17 Zarate Dep. 150:8–151:12. As to reliance, plaintiffs submit they sought employment at 18 McDonalds because it “is a large corporation with many stores around the world,” “would involve 19 a steady job in a safe environment,” and “would make sure [they were] paid and treated correctly, 20 because it is a large corporation with standardized systems.” See, e.g., Salazar Decl. ¶ 3. 21 On the other hand, the evidence McDonalds invokes establishes a genuine dispute over the 22 reasonableness of plaintiffs’ beliefs that Haynes was acting as McDonalds’ agent. For instance, 23 McDonalds notes the online employment applications also state plaintiffs “were applying for 24 employment with an independently owned and operated McDonald’s franchisee, a separate 25 company and employer from McDonald’s Corporation and any of its subsidiaries.” Lopez Dep. 26 Exs. 1, 2; Salazar Dep. Exs. 1, 2. Importantly, similar disclosures, while persuasive, have not been 27 found automatically to defeat the reasonableness of an individual’s beliefs. See, e.g., Kaplan, 59 28 CASE NO. 24 14-cv-02096-RS 1 Cal. App. 4th at 744 (noting presence of disclaimer); Miller v. McDonald’s Corp., 150 Or. App. 2 274, 284 (1997) (concluding there was a disputed issue over whether one disclosure was sufficient 3 to defeat the impression of control cultivated by the franchisor). Though it is a close call, particularly as plaintiffs are long-term employees, viewing the 4 5 evidence in the light most favorable to plaintiffs, a jury could reasonably find McDonalds to be a 6 joint employer by virtue of an ostensible agency relationship. The motion for summary judgment 7 must accordingly be denied as to that theory underlying the alleged Labor Code violations.14 8 F. Negligence 9 To sustain the negligence claim, plaintiffs must show McDonalds owed them a duty of care, the duty was breached, McDonalds’ conduct caused the breach, and they suffered damages. 11 United States District Court Northern District of California 10 See McIntyre v. Colonies-Pac., LLC, 228 Cal. App. 4th 664, 671 (2014). Plaintiffs aver 12 McDonalds’ duty arises from its position as a direct beneficiary of their services. Compl. ¶ 212. 13 They further insist McDonalds did not exercise due care in its contracting and supervision of the 14 Haynes Partnership. Id. ¶ 212. Specifically, they assert McDonalds knew or should have known 15 Haynes was violating their “employment law rights” because “McDonald’s closely monitored, 16 supervised, and controlled Haynes Partnership restaurant operations, including the hours worked 17 by Plaintiffs . . . the breaks received by those crew members, the amounts paid to those crew 18 members, and the conditions under which those crew members labored.” Compl. ¶ 137. As a 19 result of this conduct, plaintiffs maintain they suffered lost wages. Id. ¶ 215. Summary judgment will be granted in favor of McDonalds on the negligence claim, as 20 21 required by California’s new right-exclusive remedy doctrine. “As a general rule, where a statute 22 creates a right that did not exist at common law and provides a comprehensive and detailed 23 remedial scheme for its enforcement, the statutory remedy is exclusive.” Rojo v. Kliger, 52 Cal. 24 25 26 27 14 Conspiracy and aiding and abetting theories of liability appear in the complaint and are addressed in McDonalds’ opening brief, but plaintiffs do not press those theories in opposition, and they are not factually supported. Accordingly, summary judgment will be entered in favor of McDonalds on those theories of liability. 28 CASE NO. 25 14-cv-02096-RS 3d 65, 79 (1990). The California Court of Appeal has found the Labor Code statutes regulating 2 minimum wages, rest breaks, meal breaks, and pay stubs “created new rights and obligations not 3 previously existing in the common law” and “provide[] a comprehensive and detailed remedial 4 scheme for [their] enforcement.” Brewer v. Premier Golf Properties, 168 Cal. App. 4th 1243, 5 1253–54 (2008). As plaintiffs’ negligence claim asserts the same factual basis underlying its 6 Labor Code claims, they may not deploy the common law to “duplicate the theories of liability 7 [they] assert under the California Labor Code.”15 Ochoa, 133 F. Supp. 3d at 1241. See also 8 Santiago v. Amdocs, Inc., No. C 10–4317 SI, 2011 WL 1303395, at *3–4 (N.D. Cal. Apr. 2, 2011) 9 (declining to permit common law conversion claim based on statutory wage and hour violations); 10 Helm v. Alderwoods Grp., Inc., 696 F. Supp. 2d 1057, 1077–78 (2009) (concluding “common law 11 United States District Court Northern District of California 1 claims premised on [Labor Code violations] are therefore preempted”). V. CONCLUSION 12 Viewing the undisputed evidence in the light most favorable to plaintiffs, McDonalds did 13 14 not retain or exert direct or indirect control over plaintiffs’ hiring, firing, wages, hours, or material 15 working conditions. Nor did McDonalds suffer or permit plaintiffs to work, engage in an actual 16 agency relationship, participate in a conspiracy, or aid and abet the alleged wage and hour 17 violations. Accordingly, summary judgment for defendants will be entered on those theories. The 18 motion for summary judgment also will be granted as to plaintiffs’ negligence claim. The motion 19 must be denied in part, however, because plaintiffs’ Labor Code claims may proceed under an 20 ostensible agency theory. The only disputed sealing issue is exhibit 30 to the deposition of Jennie Watt. See Dkt. 21 22 No. 155, Ex. P-30. McDonalds demonstrates adequately that the document describes in detail its 23 24 25 26 27 15 Plaintiffs invoke Carillo v. Schneider Logistics, Inc., No. CV 11-8557 CAS (DTBx) (C.D. Cal. May 13, 2013), which denied a motion to dismiss a negligence claim against Walmart based on allegations that Walmart failed to exercise due care in hiring and supervising a subcontractor who employed the plaintiffs. Plaintiffs’ negligence claim, however, fundamentally is premised on McDonalds’ monitoring, supervision, and control of their working conditions, and thus is an attempt to “hold [McDonalds] liable in negligence due to [McDonalds’] violations of the California employment statutes.” Carillo, No. CV 11-8557 CAS (DTBx) at 11. 28 CASE NO. 26 14-cv-02096-RS 1 internal franchising strategy, and that disclosure may subject it to competitive harm. Exhibit 30 2 therefore appropriately may be filed under seal. The remaining requests will be dealt with in a 3 separate order. 4 5 IT IS SO ORDERED. 6 7 8 9 Dated: August 16, 2016 ______________________________________ _ __________________________ _ __________ _ RICHARD SEEBORG United States District J d U it d St t Di t i t Judge 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 27 14-cv-02096-RS

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