Salazar v. McDonald's Corp.

Decision Date01 October 2019
Docket NumberNo. 17-15673,17-15673
Citation944 F.3d 1024
Parties Guadalupe SALAZAR; Genoveva Lopez; Judith Zarate, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. MCDONALD’S CORP., a corporation; McDonald’s USA, LLC, a limited liability company; McDonald’s Restaurants of California, Inc., a corporation; Bobby O. Haynes Sr. and Carol R. Haynes Family Limited Partnership, dba McDonald’s, erroneously sued as Bobby O. Haynes and Carole R. Haynes Family Limited Partnership, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit
ORDER

The majority opinion filed on October 1, 2019, and published at 939 F.3d 1051, is amended by the opinion filed concurrently with this order. Chief Judge Thomas’ partial dissent remains unchanged.

With these amendments, Judges Kleinfeld and Graber have voted to deny Appellantspetition for panel rehearing. Chief Judge Thomas has voted to grant it. Judge Graber has voted to deny Appellantspetition for rehearing en banc, and Judge Kleinfeld has so recommended. Chief Judge Thomas has voted to grant it.

The full court has been advised of Appellantspetition for rehearing en banc, and no judge of the court has requested a vote on it.

Appellantspetition for panel rehearing and rehearing en banc is DENIED. No further petitions for panel rehearing or rehearing en banc may be filed.

OPINION

GRABER, Circuit Judge:

In this class action, workers employed at McDonald’s franchises in California appeal from a summary judgment entered in favor of McDonald’s. Plaintiffs allege that they were denied overtime premiums, meal and rest breaks, and other benefits in violation of the California Labor Code. Plaintiffs further allege that McDonald’s (the franchisor) and the franchisee are joint employers and that McDonald’s is, therefore, liable for these violations. The district court held 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. Reviewing the summary judgment de novo, and viewing the facts in the light most favorable to Plaintiffs, Animal Legal Def. Fund v. FDA , 836 F.3d 987, 988–89 (9th Cir. 2016) (en banc) (per curiam), we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

McDonald’s U.S.A., LLC1 contracts with franchisees to license the McDonald’s name, trademark, and various business practices. The Haynes Family Limited Partnership ("Haynes") operated eight McDonald’s franchises in Oakland and San Leandro, California, during the relevant period. The franchise agreements required Haynes to pay fees to McDonald’s. To maintain the franchise, Haynes had to meet certain standards, such as serving McDonald’s products.

Plaintiffs Guadalupe Salazar, Genoveva Lopez, and Judith Zarate worked at a Haynes-operated McDonald’s franchise restaurant in Oakland. They sued McDonald’s and Haynes on behalf of a class of approximately 1,400 employees at Haynes-operated McDonald’s franchises in the Bay Area. They allege that McDonald’s and Haynes denied overtime premiums, meal and rest breaks, and other benefits in violation of California wage-and-hour statutes. Plaintiffs also allege negligence and seek civil penalties under California’s Private Attorneys General Act ("PAGA"). Plaintiffs further allege that McDonald’s and Haynes are their joint employers. The relevant facts in the record, viewed in Plaintiffs’ favor, are these.

Haynes selects, interviews, and hires employees for its franchises. It trains new employees and sets their wages, which are paid from Haynes’ bank account. Haynes sets employees’ schedules and monitors their time entries. Haynes also supervises, disciplines, and fires employees such as Plaintiffs. There is no evidence that McDonald’s performs any of those functions.

Nonetheless, evidence in the record, viewed in Plaintiffs’ favor, would permit a finding that McDonald’s either caused some of the alleged wage-and-hour violations or could have prevented those violations but did not do so. Under the franchise agreement, McDonald’s required Haynes to use its Point of Sale ("POS") and In-Store Processor ("ISP") computer systems every day to open and close each franchise location of McDonald’s. Managers of the Haynes McDonald’s franchises took various courses with McDonald’s at Hamburger University and then trained other employees on topics such as meal and rest break policies. At least one McDonald’s-trained manager was required to be present during each shift at the Haynes franchises.

Haynes management also voluntarily used the McDonald’s computer systems for scheduling, timekeeping, and determining regular and overtime pay through applications that come with the ISP software, including e*Restaurant People Management Deployment and McDonald’s Dynamic Shift Positioning Tool. The e*Restaurant app is described as "a bundle of tools designed to innovate employee management—from hire to retire." It includes e*HR and e*Labor. The Positioning Tool determines where employees "should be positioned throughout their shifts and what duties they should perform." McDonald’s encouraged franchisees to use these additional applications but did not require them to do so.

McDonald’s ISP system assigns all hours recorded by workers to the date on which the shift began, including on overnight shifts. Plaintiffs allege that this system caused many employees who worked more than eight hours in a 24-hour period—for example, by working an overnight shift followed by a day shift—to miss out on overtime pay that they earned, because the system did not recognize these additional hours as overtime. The ISP system is also set to daily and weekly overtime thresholds of 8:59 hours (instead of 8:00 hours) and 50:00 hours (instead of 40:00 hours). Plaintiffs allege that the system’s settings caused many workers to miss out on overtime pay that they earned for working between eight and nine hours in one day or between 40 and 50 hours in one week. The ISP settings do not schedule any rest breaks or require second meal periods. Under the ISP settings, meal periods are set to occur at intervals of 5:15, 5:30, or 6:00 hours, instead of at the five-hour mark required by California law. And the ISP does not flag when rest breaks are missed. Plaintiffs allege that these settings caused workers to miss out on overtime pay that they should have earned for missed and late breaks.

McDonald’s represented to Haynes that its computer systems were "user-friendly" and would make "personnel maintenance easier." It further attested that the ISP settings were compliant with labor laws and strongly encouraged Haynes not to change any of the settings. And in some instances, Haynes management did not even have the ability to change ISP system settings to fix overtime allocation errors.

Additionally, McDonald’s required Haynes’ employees to wear standard uniforms and to keep those uniforms "clean and neat." Plaintiffs allege that their working conditions—for example, being stationed near hot grease—caused excessive soiling of their uniforms, which in turn required special cleaning.

After the filing of this action, Plaintiffs and Haynes reached a classwide settlement involving both injunctive and monetary relief. McDonald’s then moved for summary judgment on the ground that it is not a joint employer of workers at franchises and that it owes them no duty of care. The district court entered summary judgment in favor of McDonald’s, ruling that McDonald’s is not a joint employer of Plaintiffs because "it d[oes] not retain or exert direct or indirect control over plaintiffs’ hiring, firing, wages, hours, or material working conditions" and does not "suffer or permit plaintiffs to work, [or] engage in an actual agency relationship" with the franchisee. The court denied Plaintiffs’ negligence claim on the basis of California’s "new-right exclusive remedy doctrine." Later, the court granted McDonald’s’ Federal Rule of Civil Procedure 12(f) motion to strike Plaintiffs’ PAGA claims because a classwide adjudication of Plaintiffs’ ostensible-agency theory was "unmanageable." McDonald’s then filed another summary judgment motion, arguing that ostensible agency can never support employer liability for California wage-and-hour violations. The court granted that summary judgment motion, holding that California Wage Order No. 5-2001, section 2(H)’s definition of an employer precludes ostensible-agency liability. Plaintiffs timely appealed.

DISCUSSION
A. Joint Employment

Under California Wage Order No. 5-2001, section 2(H), an "employer" is one "who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person." In construing Wage Order No. 5-2001, the California Supreme Court has provided three alternative definitions for what it means for a person or entity to "employ[ ]" someone: "(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law relationship." Martinez v. Combs , 49 Cal.4th 35, 109 Cal.Rptr.3d 514, 231 P.3d 259, 277–79 (2010). "When interpreting state law, we are bound to follow the decisions of the state’s highest court." Paulson v. City of San Diego , 294 F.3d 1124, 1128 (9th Cir. 2002) (en banc). And "[w]hen the state supreme court has not spoken on an issue, we must determine what result the court would reach based on state appellate court opinions, statutes and treatises." Id.

Martinez considered whether seasonal agricultural workers were employed, not solely by the strawberry farmer for whom they worked directly, but also by the produce merchants to whom the farmer sold strawberries. 109 Cal.Rptr.3d 514, 231 P.3d at 262–68. The court held that the farmer alone employed the agricultural workers because he "hired and fired his employees, trained them when necessary,...

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