It's a common business model in the fast-food industry: a massive restaurant company provides the menu, the marketing—including catchy slogans and a universally recognized logo—and the basic operational standards for the restaurant, and a franchisee provides the rest—including hiring, training, and firing restaurant employees. Unfortunately for the fast-food giants (the notorious FFGs, if you will), it's also common for disgruntled employees to name them in lawsuits—particularly super-sized class-action lawsuits—against the franchisee.
In March 2014, three fast-food workers from Oakland did just that—they sued the family-owned company that operates 8 franchise restaurants in Northern California, and they brought the FFG along for the ride under a joint employment theory, serving up a complaint chock full of California Labor Code, Private Attorneys General Act (PAGA), and negligence claims. Last August, a federal judge in California dismissed the negligence claim on summary judgment and rejected the workers' theory that the franchisee acted as the FFG's actual agent. But the judge didn't toss out the workers' claims completely, finding the plaintiffs had presented enough evidence of ostensible agency to have their day in court with the FFG.
Determined to have it their way, right away, the plaintiffs settled their claims against the franchisee but moved to certify a class of more than 1,200 hourly workers who had worked at the franchisee's eight restaurants. Unwilling to pick up the franchisee's remaining tab, the FFG moved to deny class certification and to strike the representative PAGA claim. And the FFG did what Giants tend to do in San Francisco—it won. Last week, the judge found that the workers' ostensible agency theory required too many individualized inquiries to be decided on a class basis.
Under an ostensible agency theory, the FFG is on the hook for the franchisee's actions if the worker can prove: (1) in dealing with the franchisee, the worker reasonably believed the franchisee had the authority to act on the FFG's behalf; (2) the worker's belief was caused by something the FFG did or failed to do; and (3) the worker wasn't negligent in relying on the franchisee's apparent authority.
The workers argued that the questions of law or fact common to potential class members outweighed the questions that affected only individual members, and that a class action was the best way to fairly and efficiently decide their claims. In support of this argument, the workers asserted that the "belief" prong of the first requirement—that the potential class members believed the franchisee had the authority to act for the FFG—could be inferred from the circumstances. The judge wasn't convinced that the law allows such an inference, nor was he convinced that the evidence supported such an inference. Instead, the evidence showed that class members received different information about the franchisee's authority, and some actually understood that the FFG was not their employer. So, the question of belief had to be decided on an individual basis.
The judge also found that there was no way to determine, on a class basis, whether such a belief was reasonable and not negligent. Rather, what each worker knew (or should have known) varied depending on the circumstances. Some workers, for example, were told during orientation that the franchisee was their employer and the FFG was not. Some workers received and read documents informing them that the franchisee, not the FFG, was their employer; others either did not receive or did not read that paperwork. In other words, whether a belief was reasonable and not negligent depended on the information available to each worker.
Likewise, the judge found that reliance can't be determined on a class-wide basis. The workers—pointing to out-of-context case law—argued that courts often presume reliance when there is no evidence that the plaintiff knew or should have known that the purported agent was not an agent of the principal. But even if that case law applies in the franchise context, the workers' argument begged the question; the presumption couldn't apply on a class-wide basis because, as the judge had already explained, the knew-or-should-have-known question couldn't be answered on a class-wide basis. The order: individualized inquiries, all the way.
The workers also argued that the court should certify a class because they were seeking injunctive relief on a class-wide basis. But the judge didn't see how an injunction against the FFG could help the franchisee's employees, when he had found in his summary-judgment opinion that the FFG didn't control the aspects of their employment at issue in the case. Simply put, where's the beef?
The workers' PAGA claim fared no better; the judge found that a representative PAGA action wouldn't be manageable because it relied on the ostensible agency theory, which could only be established through individualized inquiries. So, while the three plaintiffs can still pursue their individual claims against the FFG on an ostensible agency theory, those are small fries compared to the representative claims they had hoped to bring on behalf of more than 1,200 other workers.
The take-home for the notorious FFGs who franchise independent restaurant owners, of course, is to stay out of the kitchen when it comes to the relationship between the franchisee and its employees. And, for the FFGs' sake, franchisees should make sure employees know where their bread is buttered.
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