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Posted by on Nov 17, 2016 in Uncategorized | 0 comments

Do You Want Fries With That Harassment Suit?

By: Matthew Freeze

 

In early October 2016, fifteen employees at various McDonald’s franchises filed charges of sexual harassment with the Equal Employment Opportunity Commission (“EEOC”) alleging that individual supervisors at these McDonald’s outlets had sexually harassed the employees over a period of several years.[i] McDonald’s is structured, however, in such a way that 80% of the individual restaurant outlets are operated by individual franchisees.[ii] Under basic principles of agency, McDonald’s—as franchisor—will generally only be liable for acts of its franchisees if the franchisee’s actions are under the franchisor’s control and within the scope of the agreement between the two.[iii] To avoid liability for the above sexual harassment claims, McDonald’s will only need to demonstrate that its franchisees are truly independent contractors.[iv] Therefore, if the fifteen employee-claimants can demonstrate the individual franchisee supervisors were acting illegally and that McDonald’s exercised sufficient control over the actions of those franchisees and supervisors to warrant liability, then the employees may well succeed in bringing their sexual harassment claims against McDonald’s.

In 1986, the Supreme Court first noted that the creation of a hostile work environment qualified, under certain circumstances, as a valid claim under Title VII of the Civil Rights Act of 1964,[v] and the EEOC has defined sexual harassment as an unlawful means for creating such a hostile working environment.[vi] The purpose of this article is not, however, to examine the merits of the individual workers who have filed claims against McDonald’s. For one, such filings are confidential.[vii] At a minimum, for such harassment “to be actionable, it must be sufficiently severe or pervasive ‘to alter the conditions of [the victim’s] employment and create an abusive working environment.’”[viii] It is arguable that the fifteen employees, assuming their allegations are true, would have suffered from such a difficult working environment at the hands of their supervisors. A recent national survey of non-managerial female fast food workers found that two in five women “have been subjected to sexual harassment on the job,” with many reporting “serious negative health and professional consequences.”[ix] Given this, it is tentative as to whether sexual harassment is occuring on a national scale. If the allegations of the fifteen employees[x] are indeed true, then those individual supervisors will face punishment individually and so will their individual franchises, under the principle of respondeat superior. It is also questionable that a successful claim will have wide-ranging impact on franchise operations of fast-food outlets nationwide. The question then becomes: what of McDonald’s’ involvement and liability in the matter?

This article, therefore, examines whether McDonald’s—a multi-national company in the business of offering franchise fast-food restaurants—can be vicariously liable for the conduct of its individual franchisees for sexual harassment of individual employees. Franchisors are caught in a delicate equilibrium where they must balance their interest in maintaining strict uniformity in what is produced by franchisees against minimizing control over their franchisees’ operations to limit their vicarious liability for things like sexual harassment.

In the oft-cited Patterson v. Domino’s Pizza, the California Supreme Court examined the same issue as it specifically applied to sexual harassment of an employee of a Domino’s franchise.[xi] The court held that a franchisor will likely become liable for franchisee actions “only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”[xii] Essentially, the court denied joint control over the franchise employee because the franchisee retained the traditional sense that it was an independent contractor.[xiii] Ultimately, the court did not hold Domino’s liable because Domino’s had no ability to exercise control over the individual franchise employee’s harasser.[xiv]

This trend in denying joint employer liability in franchisor-franchisee relationship appears to be eroding. The National Labor Relations Board (NLRB)—the federal agency tasked with safeguarding employee rights and preventing and remedying unfair labor practices[xv]—recently laid down a much more expansive view of this concept. The NLRB held that two companies will be considered joint employers of an individual employee if they “share or codetermine those matters governing the essential terms of conditions of employment.”[xvi] This joint employer status is crucial for determining whether a franchisor will maintain vicarious liability for the actions of the franchisee or its employees.

McDonald’s has been able to avoid corporate liability from the individual actions of franchisee employees on several occasions and on similar grounds.[xvii] In light of the new NLRB ruling[xviii], however, McDonald’s liability will hinge almost entirely on the degree of control it exercised over its individual franchisees such that it can be considered a joint employer.

In its franchise agreements, McDonald’s regularly outlines the specifications for the products, appearance, and personalities that the franchisees will be “selling” to the market.[xix] As noted above, these sorts of arrangements would be inculpable to the Patterson court because they fail to control the day-to-day operations of the individual franchisee.[xx] Specifically, the franchise agreement notes that franchisees are to be defined as independent contractors.[xxi] In addition, McDonald’s has made it clear to its actual employees and its franchisees that there is a zero-tolerance policy for harassment, sexual or otherwise.[xxii]

The NLRB’s rulings on joint employer liability should give McDonald’s pause. While McDonald’s may argue that their franchise agreements are structured in such a way as to remove their liability, the actual involvement of corporate management in the day-to-day “operational nitty-gritty” of things, like wages, has compelled the NLRB take a closer look at the franchisor-franchisee relationship in relation to McDonald’s claims.[xxiii] In the early 2016 fight for a $15 minimum wage, the NLRB represented workers appealing for an increase in their pay and argued that McDonald’s was regularly involved in the operational decisions of its franchisees.[xxiv] While this case is ongoing, if the NLRB Board assigns joint employer status to McDonald’s franchises, it will upend decades of how the American legal system has examined franchise agreements, specifically joint liability for sexual harassment by franchise employees.

Franchisors, therefore, will be paying close attention to how both the NLRB and EEOC decisions will affect their relationships with their franchisees. At a minimum, the EEOC claims may bring redress to the individual women who were harmed by the egregious conduct of their supervisors, even if it is through a settlement process. On a broader scale, however, one would hope that these claims would push McDonald’s to truly enforce their zero-tolerance policy towards harassment (sexual and otherwise) and effect a system-wide change to bring justice to any individuals who have suffered. If the NLRB Board decides to find joint employer liability in the McDonald’s wage cases, the EEOC claims for sexual harassment will likely become that much stronger and a systematic change will likely result.

 

Sources:

[i] Samantha Bomkamp, McDonald’s workers file sexual harassment charges with EEOC, Chicago Tribune (October 5, 2016, 1:14 PM), http://www.chicagotribune.com/business/ct-mcdonalds-sexual-harassment-1006-biz-20161005-story.html.

[ii] Company Profile, McDonald’s, http://corporate.mcdonalds.com/content/mcd/investors/company-overview/.

company-overview-segment-information.html (last visited Nov. 13, 2016).

[iii] Restatement (Second) of Agency §219-220 (Am. Law. Inst. 1958).

[iv] Id.

[v] See Meritor Sav. Bank, FSB v. Vinson, 477 U.S. 57, 73 (1986); 42 U.S.C. §2000e (2016).

[vi] 29 C.F.R. §1604.11.

[vii] Confidentiality, U.S. Equal Emp. Opportunity Comm., https://www.eeoc.gov/employees/confidentiality.cfm (last visited Nov. 13, 2016).

[viii] Vinson, 477 U.S. at 67.

[ix] Key Findings from a Survey of Women Fast Food Workers, Hart Research Associates (October 5, 2016), http://hartresearch.com/wp-content/uploads/2016/10/Fast-Food-Worker-Survey-Memo-10-5-16.pdf.

[x] Supra note 1.

[xi] Dana Kravetz, “Indirect Control”—New NLRB Joint Employer Rule Headed for Appeal, M&R Blog (April 28, 2015), http://www.mrllp.com/blog-indirect-control-new-nlrb-joint-employer-rule-headed-for-appeal.

[xii] Patterson v. Domino’s Pizza, 333 P.3d 723, 738-39 (Cal. 2014).

[xiii] Id. at 740.

[xiv] Id.

[xv] What We Do, Nat’l. Lab. Rel. Bd., https://www.nlrb.gov/what-we-do (last visited Nov. 13, 2016).

[xvi] Browning-Ferris Industries of Cal., Inc., 362 N.L.R.B. No. 186 (Aug. 27, 2015).

[xvii] See Evans v. McDonald’s Corp., 936 F.2d 1087 (10th Cir. 1991) (holding that McDonald’s Corporation could not be defined as the plaintiff’s employer due to franchise agreements separating McDonald’s Corporation from plaintiff’s actual employer); Dotson v. McDonald’s Corp., 1998 U.S. Dist. LEXIS 4646 (N.D. Ill. 1998) (holding McDonald’s Corporation could not be liable under a theory of apparent agency because plaintiff provided no authority to support the theory).

[xviii] Supra note 16.

[xix] Franchise Disclosure Document, 6-8, McDonald’s, available at: http://www.bluemaumau.org/sites/default/files/.

MCD%202013%20FDD.pdf (last visited Nov. 13, 2016).

[xx] Supra note 14.

[xxi] Franchise Disclosure Document, 10.

[xxii] Standards of Business Conduct, 18, McDonald’s, available at https://www.mcdonalds.com/dam/About.

McDonalds/Investors/9497_SBC_International_EN-US%20v2%20final%20061311.pdf (last visited Nov. 13, 2016).

[xxiii] Alexia Elejalde-Ruiz, Why should McDonald’s be a joint employer? NLRB starts to provide answers, Chicago Tribune (Mar. 10, 2016, 7:23 PM), http://www.chicagotribune.com/business/ct-mcdonalds-labor-case-0311-biz-20160310-story.html.

[xxiv] Id.