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California Court Finds Franchisor Is Not Joint Employer, but Denies Summary Judgment on Ostensible Agency Theory
Posted in Employment

A federal court in California granted a franchisor’s motion for summary judgment on all but one claim brought by a franchisee’s employees, holding that there was a fact question on the reasonableness of the employees’ belief that the franchisee was operating as an agent of the franchisor. Cruz v. MM 879, Inc., 2019 WL 266458 (E.D. Cal. Jan. 18, 2019). The plaintiffs are a class, which the court certified in a separate order on the same day, of approximately 181 current and former employees of MM 879, a California-based Merry Maids franchisee. They alleged that several of MM 879’s wage and hour policies violated California law, and that they were jointly employed by franchisor Merry Maids, as well as its parent company, an affiliate, and a payroll and staffing company used by MM879. Merry Maids and its related companies moved for summary judgment arguing that they were not joint employers and could not be held liable for any of MM 879’s wage and hour policies or practices.

The plaintiffs attempted to show that Merry Maids was their employer by highlighting sections of the franchise agreement and operations manual dictating policies relevant to their claims. The court found that, while these documents may have shown that Merry Maids had the authority to control franchisees indirectly, there was insufficient direct control to establish an employment relationship. While parts of the challenged compensation scheme were discussed in the operations manual, MM 879’s owner testified that he never read the operations manual and ignored Merry Maids’ compensation policies. The court agreed that Merry Maids did not control the plaintiffs’ wages, hours, or working conditions and was not a joint employer under California law and therefore dismissed the plaintiffs’ joint employer claims.

However, the court denied summary judgment on the plaintiffs’ alternative theory that MM 879 was the ostensible agent of Merry Maids. The court held that the plaintiffs’ declarations about Merry Maids’ “pervasive branding” on employee handbooks, paystubs, training materials, and uniforms was sufficient to create a genuine issue of fact as to whether the plaintiffs reasonably believed MM 879 was an agent of Merry Maids. Notably, this decision is in direct opposition to the ruling in Salazar v. McDonald’s Corp., 2017 WL 950986 (N.D. Cal. Mar. 10, 2017), where another California federal district court held that an employment relationship cannot be created through ostensible agency without establishing that the defendant had control over the employees’ wages, hours, or working conditions. Merry Maids has filed a motion for reconsideration of this portion of the court’s order.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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