Is McDonald’s responsible for franchisees’ labor risks?

Are the employees of your franchisee your employees too?
That’s the question National Labor Relations Board General (NLRB) Counsel Peter Robb sought to avoid when he proposed the March 19, 2018 settlement agreed to by McDonald’s. The answer could have had broad impact on the franchise industry, says Journalist Noam Schreiber reporting for the New York Times. He notes that had the case gone to court, it would have had enormous implications for the franchise business model.

Who is responsible for labor law violations?

Employees at various McDonald’s franchises charged that the franchisees had violated their labor rights. At issue was whether employees of different franchise owners could seek union representation to deal directly with the franchisor, rather than be limited to addressing their disputes with the individual franchise owners.

Rob did not push for a decision in the case. Instead, he brokered settlement terms among McDonald’s, its franchisees and their workers. The proposed settlement would not require McDonald’s to admit liability but would provide workers who alleged that McDonald’s franchises had violated their labor rights, with payments ranging from $20 to $50,000. The settlement would also enable McDonald’s to avoid a ruling that it is, in fact, a “joint employer” of workers at its franchise restaurants.

The case at issue is being tried before a special court of the National Labor Relations Board (NLRB). The claimants argue that McDonald’s, along with the franchise owners, are liable for violating labor laws that protect employees. According to Schreiber’s report, the workers assert that their bosses at McDonald’s restaurants disciplined them, retaliated against them and in some cases, fired them for taking part in protests beginning in 2012 in which they demanded a $15 hourly wage and a union. By including McDonald’s in their suit, the claimants assert that McDonald’s should be deemed their joint employer and equally liable for labor law violations because the franchisor exerts sufficient control over the employees. Generally, a parent company is liable as a joint employer if it controls employees’ working conditions.

According to Reuter’s Reporter Daniel Wiessner, the case is seen as an important test of how the NRLB’s 2015 decision to make it easier to prove that a company is a joint employer would apply to franchises. The 2015 decision was overruled in December 2017 when the NLRB said only companies with direct control over workers may be considered joint employers. However, last month, the Board found that its December ruling was invalid because NLRB member William Emanuel, had a conflict of interest. This brings us to today.

McDonald’s argues that the benefits of the proposed settlement will eliminate the need for years of litigation. Moreover, McDonald’s claims, the terms of the proposed settlement are more substantial than anything that the government was likely to win in court. But not so says the lawyer for the Service Employees International Union and affiliated groups. The groups which helped bring charges against McDonald’s and which have advocated for the workers, called the proposal a sham. The Judge has indicated that she will hold a hearing on the proposed settlement and that no such agreement will be valid without her approval.

What does this mean for franchisors?

In light of fluctuating joint employer standards, be careful when guiding franchisees on their employment processes. Regardless of how this case ends for McDonald’s, franchisors will want to ensure that they do not exert so much control over the working conditions of their franchisees’ employees that they become subject to a claim of joint employer. To protect yourself, invest in a thorough review of your franchise disclosure documents, agreements and operations manuals.

As in all business management, knowledge is power. So be informed. Talk with your franchise attorney. Still got questions? Feel free to email them to me, Julie Lusthaus at [email protected] and let’s talk.


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