Workers Want McDonald's Held "Vicariously Liable" for Wage Theft

Just like the horrendous Toddlers & Tiaras stage moms who live vicariously through their kids by pushing them into the hyper-competitive world of child pageants, trial lawyers are ensnaring deep-pocketed corporations for alleged violations committed by their franchisees.


Attempting to broaden the concept of "vicarious liability" to capture McDonald's (NYSE: MCD  )  in their net, trial lawyers want to hold the restaurant operator responsible for actions its franchisees took in California, New York, and elsewhere where they supposedly had employees work off the clock, denied overtime pay, had them pay for their own uniforms in violation of state law, and committed other instances of "wage theft."

The lawyers want the suit to drag McDonald's into the case, because the fast-food chain requires its franchisees to use labor-scheduling software that provides them real-time notification of labor costs. Since franchisees allegedly misused a required tool, the trial lawyers say the franchisor is responsible, but courts usually base their rulings on the day-to-day control the franchisor exerts over the franchisee, and it seems to this layman that the chain should escape having vicarious liability attached to it.

While McDonald's does prescribe the scheduling software, there's nothing to indicate that it tells its franchisees to underpay or not pay its employees for work performed. Courts have traditionally recognized that there needs to be some uniformity of rules dictated from on high to ensure, for example, that the McDonald's we walk into in New York has the same feel as one we walk into in Texas, but the franchisees still own and operate their businesses and are intended to do so as independent parties.

Burger King Worldwide  (NYSE: BKW  ) , for example, was found not vicariously liable for a slip-and-fall lawsuit at one of its franchised restaurants even though the franchise manual spells out that sidewalks and parking lots should be cleared of ice and snow. Because it wasn't so detailed as to direct the manner in which it should be cleared, leaving that up to the discretion of the restaurant, the burger joint was not held responsible.

Domino's Pizza (NYSE: DPZ  ) , on the other hand, was found to be vicariously liable for a car accident caused by one of its franchisee's drivers because the court said the pizzeria's franchise manual was a "veritable bible for overseeing a Domino's operation" that left nothing to chance. It was deemed responsible for the accident and is why Domino's no longer guarantees that its pizzas will be delivered in 30 minutes or less.

Source: McDonald's.

In perhaps the most infamous case of vicarious liability, McDonald's itself was held liable when Stella Liebeck spilled a cup of hot coffee in her lap and suffered third-degree burns because it dictated to the franchisees how hot the coffee should be served. A jury awarded Liebeck $2.86 million in costs and damages, though a judge significantly reduced the final amount to $640,000 and the two sides ultimately settled for under $600,000.

There's a reason cups of hot coffee come with warning labels that its contents are hot, that chainsaws advise against holding the wrong end, and that hair dryers recommend not using them while you sleep. Lawyers are nothing if not creative in trying to bend the law to extract settlements out of corporations, but the latest lawsuits seem to have just as much to do with the union-organizing efforts of Fast Food Forward, a union-backed activist group that's led more than 100 strikes at fast-food restaurants around the country last year to increase the minimum wage. It is responsible for shepherding some of McDonald's alleged "wage theft" victims to the trial lawyers. 

Yet as such lawsuits proliferate and as activists agitate for imposing higher costs on companies, all they'll succeed in doing is make employees more expensive to hire. Whether through fewer workers, shorter hours, or higher prices, employers will become creative in passing along the increased costs, and it will be the workers themselves who will be left vicariously experiencing what it feels like to bring home a paycheck as their jobs are eliminated because it no longer makes economic sense to hire them.

Taking the bull by the horns
Living vicariously through others ultimately leaves you cold, because there's a huge difference between living an experience and watching others do it, and it's no different when it comes to investing. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich, but only if you experience the thrill of its climb in your own portfolio and not reading about how someone else scored it big. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2014, at 7:08 AM, pokos3 wrote:

    You lost pretty much any credibility you had when you propped up the Hot Coffee lawsuit for tort reform. 5 minutes of research would tell you that the coffee McDonald's served was beyond unreasonably hot. McDonald's even admitted it. You would have to be blind to understand that. The woman received 3rd degree burn on 6% of her body. People spill coffee all the time, but it doesn't take a rocket scientist to realize that it shouldn't be hot enough to potentially kill someone. Not only that, but the initial settlement offer was $20,000 to cover medical expenses. I actually agree with you that McDonald's shouldn't held vicariously liable, but the sheer amount of bias in this article is just embarrassing.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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