NLRB’s McDonald’s franchise determination called ‘aggressive play’

A National Labor Relations Board (NLRB) ruling that the McDonald’s corporation is a joint employer with its franchisees is a departure from longtime precedent that’s drawing fire from the fast-food giant and other business interests.

The NLRB’s Office of the General Counsel released a statement on July 29 saying the Oak Brook, Illinois-based corporation could be named as a joint employer in a rash of complaints stemming from employee efforts to unionize and fight for higher wages. The decision is “another aggressive play” by the NLRB, according to Bart N. Sisk, an attorney with Butler Snow LLP in Memphis, Tennessee.

Sisk said the decision is significant on two fronts. First, it puts McDonald’s back in the middle of the fight to raise wages for fast-food and other low-wage workers. “McDonald’s and others have been able to avoid that a bit by asserting that they don’t determine wage rates; franchise owners do,” he says.

Sisk said unions can be expected to assert that the NLRB’s action is proof that companies like McDonald’s can and do control wages. “Obviously, in the court of public opinion, McDonald’s is a much easier target than the individual franchise owners. And, of course, McDonald’s will not be the only target on that point.”

The other front centers on union organizing. Sisk says unions want to pick up as many new members as possible quickly rather than organizing workers one franchise at a time. “With this decision, unions may have gained some leverage to persuade companies to agree to some type of right to organize/neutrality arrangement covering future organizing,” Sisk said.

McDonald’s responded to the NLRB decision by maintaining that it’s not a joint employer with its franchisees.

“McDonald’s serves its 3,000 independent franchisees’ interests by protecting and promoting the McDonald’s brand and by providing access to resources related to food quality, customer service, and restaurant management, among other things, that help them run successful businesses,” Heather Smedstad, McDonald’s senior vice president for HR, said in a statement released after the NLRB decision. “This relationship does not establish a joint employer relationship under the law.”

Smedstad said the company would contest the decision and that the ruling “changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the United States.”

McDonald’s and other fast-food and traditionally low-wage employers have been the target of protests aimed at raising wages. Some employees taking part in the protests have alleged that their employers retaliated against them in violation of the National Labor Relations Act (NLRA).

The NLRB released a statement saying its Office of the General Counsel has investigated charges from McDonald’s workers and found merit in some of them. The joint-employer decision means McDonald’s could share liability for actions taken by a franchisee.

McDonald’s claims the joint employer reasoning is off base. “McDonald’s does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees—which are the well-established criteria governing the definition of a ‘joint employer,’” Smedstad said.

The International Franchise Association (IFA) also criticized the NLRB determination. “The NLRB’s Division of Advice recommendation that franchisors and their franchisees be designated as joint-employers is both wrong and unjustified,” IFA President and CEO Steve Caldeira said in a statement following the decision. “This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors, a bedrock principle of the rule of law.”

Caldeira said franchisees have their own employer identification number with the IRS, file their own taxes, establish day-to-day operations, make their own hiring and firing decisions, and set wage rates, benefits, and work schedules.

“By proposing this seismic change, a supposedly independent federal agency is yielding to intense outside pressure from labor unions led by the Service Employees International Union (SEIU), which is seeking to unionize franchise chains and undermine the proven, time-tested franchise business model,” Caldeira said.

Labor interests assert that the amount of control McDonald’s has over franchisees means it should be considered a joint employer. Micah Wissinger, an attorney with Levy Ratner, P.C., a law firm representing union interests, was quoted in a Chicago Tribune article as saying, “The reality is that McDonald’s requires franchisees to adhere to such regimented rules and regulations that there’s no doubt who’s really in charge.”