Franchisors Not Lovin’ It: NLRB Announces McDonald’s Named Joint Employer with Franchisees

On July 29, 2014, the National Labor Relations Board (NLRB) Office of the General Counsel announced that McDonald’s, USA, LLC will be named as a “joint employer” in at least 43 cases alleging unfair labor practices against its franchisees—a decision that could hold McDonald’s responsible for employment actions taken at thousands of its franchises and could impact all businesses operating under a franchise model. In addition, the ruling could open the door to unionizing the fast-food industry nationwide. 

Since November of 2012, 181 cases involving McDonald’s have been filed with the NLRB General Counsel alleging that McDonald’s franchisees and their franchisor, McDonald’s, USA, LLC, violated the rights of employees as a result of activities surrounding employee protests. Of these 181 cases, 43 cases have been found to have merit and will proceed with McDonald’s as a joint employer unless the parties can reach a settlement.

The majority of the cases involving McDonald’s stem from claims that franchisees have taken adverse employment actions against workers, in some cases terminating their employment, for participating in protests related to higher wages for fast-food workers. These workers, with assistance from the Service Employees International Union (SEIU), have filed claims with the NLRB stating violations of labor laws. The claims assert that the franchise workers really work for McDonald’s, the franchisor, and not the franchisee.

The fast-food workers allege that because McDonald’s exercises crucial control over its franchisees (including requiring owners to adhere to strict rules and regulations on food, cleanliness and employment practices), the franchisor is in charge and should not be able to hide behind its franchisees. Throughout the campaign to pressure fast-food chains to adopt a $15.00/hour wage minimum, most chains have responded that they do not set employee wages. The NLRB’s ruling significantly weakens that defense. In addition, if the ruling is upheld, employees of all McDonald’s restaurants could be treated as though they work for the corporation, easing the way for fast-food worker unionization.     

McDonald’s has said it will contest the decision and stated that it does not determine or help determine decisions on hiring, wages or other employment matters for its franchisees. McDonald’s also stated that it believes the decision “changes the rules for thousands of small businesses and goes against decades of established law.” Indeed, since 1982 the Board has adopted a narrow standard for a joint employer, holding that a company could be deemed as such when it “directly controlled” a franchisee’s or temp agency’s employment practices. The recent decision appears to adopt an earlier standard which found that a company could be considered a joint employer when two or more employers exerted “significant control” over the same employees.  

The employees’ claims will be heard before administrative law judges, and if the joint-employer standard is upheld, McDonald’s is likely to appeal to the full five-member labor board in Washington. Given the potential impact of this ruling, this case could likely end up before the Supreme Court.

Topics:  Fast-Food Industry, Franchises, Franchisors, Hiring & Firing, Joint Employers, McDonalds, NLRB, SEIU, Unfair Labor Practices, Unions

Published In: Franchise Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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