In a breathtaking announcement issued on July 29, 2014, the Office of the General Counsel of the National Labor Relations Board has authorized the issuance of complaints against McDonald’s USC, LLC in at least 43 unfair labor practice charge proceedings where the legal employer is not McDonald’s but a McDonald’s franchisee. The pending unfair labor practice charges, which have been filed throughout the U.S., assert a wide array of claims, including claims that the employer made coercive statements to prevent unionization, interrogated employees regarding their views on unionizing, or retaliated against employees for engaging in protected concerted activity.
This General Counsel’s announcement follows closely on the heels of an amicus brief, filed in Browning-Ferris Industries of California, Inc., Case 32-RC-109684, in which the General Counsel urges the NLRB to adopt a new joint-employment standard. The brief exhorts the NLRB to accept “economic realities” in which (as the General Counsel alleges) entities structure their economic relationships in a way that one entity may be free of an employer’s legal obligations while exercising direct or indirect over the working conditions of another entity’s employees.
The joint employment doctrine is an extension of the doctrine of common law employment. It asks the question whether the nominal employer, often a staffing agency or a subcontractor, is the only entity exercising common law control over its employees, or whether the entity that has contracted for services provided by employer is also exercising common law control. Examples of common law control would include the ability to hire or fire workers, and the ability to direct the means and methods by which they perform their work.
What is different in the McDonald’s cases is that the franchisees’ employees do not perform services for (or for the benefit of) McDonald’s, nor does McDonald’s pay the franchisees for the employees’ services. Rather, to establish joint employment, the General Counsel relies upon branding requirements established by the franchise holder – McDonald’s – and how they exert control over the working conditions of the franchisees’ employees.
The potential scope of the General Counsel’s decision is difficult to overestimate. Franchising is the way of doing business beyond the retail food and beverage industry. Hospitality, automobile sales and automotive services, and all manner of retail businesses rely on franchising to expand geographically while preserving the name and reputation of the brands under which they operate. Indeed, the real “economic reality” is that franchisors own valuable intellectual property (e.g., trademarks and business methods), which they can protect only through quality standards for franchisees.
McDonald’s has announced that it disagrees with the General Counsel’s decision, and it likely will be many months before the NLRB might be called upon to determine whether the General Counsel is correct. If the NLRB does adopt the General Counsel’s view, it will not be the first time that the NLRB has asserted the primacy of the National Labor Relations Act over other federal law (D.R. Horton is another example), or has challenged the prerogatives of business owners to make fundamental decisions regarding their businesses (such as in the Boeing relocation case). However, the potential impact of this decision could be more profound than any other decision we have yet seen from President Obama’s NLRB.