Food, Folks, and Franchise-Wide Liability: NLRB Signals Intent to Pound Square Joint Employer Peg Into Round Franchise Hole

by Foley & Lardner LLP
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A big part of what makes the franchise model of business attractive to small business owners is the opportunity to own and operate their own business, but with their entrepreneurial risk backstopped by a known regional or national brand. In turn, the franchisor facilitates the success of its franchisees by providing varying degrees of uniformity to franchise operations as a whole, from which both the franchisor and the franchisees benefit economically. Conceptually and legally however, the franchisor and the franchisee operate separate businesses, and each must achieve success through its own efforts. This longstanding and widely used business model has just come under attack to the possible significant benefit of agitating employees and labor unions.

Late last month, the General Counsel for the National Labor Relations Board issued an advice memorandum directing the Board’s regional offices to treat the franchisor and franchisees of McDonald’s as joint employers in 43 unfair labor practice charge matters pending throughout the country if the charges cannot be informally settled. This directive comes against the backdrop of organized labor’s recent campaign agitating for a $15/hour minimum wage for fast food workers nationwide. Though the General Counsel directive does not at this point have the legal heft of a full Board decision, it is not hard to imagine the current members of the Board – if this issues comes before them – endorsing the General Counsel’s joint employer conclusion in light of the clearly labor-friendly trend the current NLRB has established.

The potential implications of this treatment range far beyond potential joint employer liability for the possible consequences of unfair labor practice allegations, which now at a minimum creates pressure to agree to union-dictated settlements merely because they file unfair labor practice charges. Joint employer treatment also has possible ramifications on union organizing efforts; with the Board signaling that it is about to reverse its Register Guard decision and open up all company email systems for union organizing use, it is not difficult to imagine what unions might do with access to a franchise email system, even if many employees do not have company email accounts. Unions would also have more options to include in their organizing strategy, and could focus on one franchisee or pursue a much larger employee group within the franchise network. Conceivably, the joint employer requirement could even be extended outside the NLRB’s umbrella in an effort to assert discrimination or wage and hour claims against a national franchisor.

While the General Counsel’s directive only technically applies to McDonald’s, it is highly likely the Board would take a similar view with respect to other national restaurant franchises, and then beyond the fast food industry after that. Not surprisingly then, both restaurant industry and business organizations immediately reacted to the General Counsel’s directive, calling it a change to decades of established U.S. franchise law that will jeopardize the entire franchise model in the country. For its part, McDonald’s has called the joint employer assertion “wrong” and vowed to fight it.

This issue will certainly merit close attention as it continues to develop. At this stage however, one thing is clear: the franchise model in the U.S. has become the latest battleground where federal agencies are looking to create onerous new employee protections and opportunities for organized labor to exploit.

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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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