McDonald's Corp. agreed on Friday to pay $3.75 million to settle a lawsuit with about 800 Bay Area-based franchise workers, who claimed they were owed overtime pay due to flaws in payroll systems and denied state mandated breaks, among other complaints.
The settlement is the first time that McDonald’s corporate is paying franchise workers to settle a suit, lawyers said. It must now be approved by a district judge.
As McDonald's and other fast-food workers organize for better pay and conditions, one crucial legal battlefront concerns whether McDonald's corporate is responsible for labor violations at franchised stores, which the company does not own. Nearly 90% of McDonald's US restaurants are owned and operated by franchisees.
Cases currently before the National Labor Relations Board and the Equal Employment Opportunity Commission both hinge on this question. If the McDonald's company is found to be a joint-employer of workers at franchise-owned restaurants, it will be on the hook for wage-and-hour violations at stores owned by franchisees. The joint-employer status would also make it easier for workers to unionize across stores, to bargain collectively with a common employer.
Catherine Fisk, a labor law professor at the University of California, Irvine, said while "in a narrow, legal sense, the settlement has no implications for the ongoing NLRB inquiry," the fact that McDonald’s settled the case for a substantial amount of money "does suggest that its lawyers have concluded that there is some risk" that it could have been found to be a joint employer had the case moved forward.
McDonald's spokesperson Terri Hickey said in a statement that the company is not a joint employer of its independent franchisees’ employees. "[R]ather we entered into this mutually acceptable resolution to avoid the costs and disruption associated with continued litigation," she wrote in an email to BuzzFeed News.
Of the settlement money, $1.75 million will go to roughly 800 fast-food crew members, to compensate them for back pay and damages, with $2 million going towards legal fees and expenses.
Smith Family, the franchise owner in the case, previously settled the crew members' claims for $700,000 in December, but workers argued that both McDonald's corporate and the franchisee were jointly liable for systematic wage theft. A US District Judge said that the staffers could proceed as a class with their claims against the corporation.
Michael Rubin, a partner at Altshuler Berzon, one of the law firms that represented the workers, called the settlement “the first major crack in the wall of McDonald’s joint-employer defense.”
You can read the full motion for settlement below: