NLRB’s GC Says McDonald’s on the Hook for Franchisee Violations as Joint Employer

McDonald’s parent company would be liable as a joint employer in any proceedings by the National Labor Relations Board on labor and wage violations at McDonald’s franchises, the NLRB’s general counsel said in a July 29 determination. The franchisees’ alleged violations of the National Labor Relations Act relate specifically to a spate of lawsuits filed in the wake of worker protests across the country calling for higher wages. However, experts say it could have an impact on longstanding joint employment definitions outside the NLRB’s purview.

Background

Franchise and subcontractor employment relationships have come under public scrutiny both in the media and in courts in recent months. Several campaigns have tried to organize workers in the fast food industry around workers’ wages and union access.

In May, demonstrators marched on McDonald’s headquarters during the company’s annual shareholder meeting demanding a “living wage” for workers, and a handful of cases have been filed in federal and state courts over the company’s treatment of workers both in general and in the wake of the coordinated strikes. Similar attention has been given to wages and treatment of workers at Walmart stores and truck drivers and other subcontractors for logistics companies.

Employers that use a franchise or subcontracting model have argued that they are not liable for worker claims because they are not involved in the day-to-day operations of their franchisees or contractors and that they don’t directly oversee the workers, meaning they should not be considered an employer. If a joint employment relationship was determined to exist in these relationships — such as McDonald’s franchise agreements — it could undermine that argument.

Such relationships are also expected to come under greater scrutiny under new Wage and Hour Administrator David Weil. Weil was the principal investigator on a paper that called the labor practices in contracting and franchise relationships into question, and which formed the basis of some enforcement priorities for the U.S. Department of Labor.

NRLB Memo

The NLRB general counsel authorized complaints after investigating charges against McDonald’s franchisees on whether they violated employee rights surrounding worker protests for NLRA purposes. In all, 181 cases involved McDonald’s have been filed since 2013, according to the NLRB GC’s office. Of those, 43 cases were found to have merit, 64 cases are pending investigation and 68 cases were found to have no merit. If the parties in the 43 cases determined to have merit can’t reach a settlement, McDonald’s would be deemed a joint employer in any NLRB complaints. As a joint employer, McDonald’s would find itself on the hook with each of its franchisees for any wage liabilities if the cases go in favor of the workers.

The cases will go before an administrative law judge next. If the decisions go against McDonald’s it is likely that company would appeal in order to get a full board decision on its joint employer liability. For now, it is only a GC determination.

The determination should not come as a surprise to those who follow the agency closely. In May the NLRB solicited briefs on whether or not it should “adhere to its existing joint employer standard or adopt a new standard.”

Separately from the McDonald’s cases, the NLRB is considering an additional case that touches on joint employment. The board granted a Teamsters’ appeal in a case against Browning-Ferris Industries. The union tried to hold an election for workers at a recycling plant that involved workers at the plant, not just the staffing agency that controls most of plant payroll. The NLRB’s regional board had ruled in favor of the plant.

The Business Community Reacts

Business groups including the U.S. Chamber of Commerce, the International Franchise Association, the National Restaurant Association and the National Retail Federation issued statements deploring the NLRB decision.

The U.S. Chamber of Commerce said that while the general counsel’s memo was just the first step in the NLRB’s process, it was very concerned about its broader implications for businesses.

“This Memorandum has broad implications and appears to undermine settled law defining who is the employer under the National Labor Relations Act,” said Randy Johnson, senior vice president for labor, immigration and employee benefits with the Chamber. “This upends existing law and is part of a larger agenda at the NLRB to overturn the joint-employer standard.”

Johnson also asserted that dismantling such legal standards was a high priority for unions and workers’ groups that are focused on organizing fast food employees.

An assertion of a joint employer relationship between McDonald’s and its franchisee employees would “overturn 30 years of established law regarding the franchise model,” said Angelo Amador, vice president labor and workforce policy for the National Restaurant Association in a statement responding to the NLRB GC decision.

“The long-established joint-employer standard has helped create millions of restaurant jobs through the franchisor/franchisee model. NLRB’s attempts to overhaul the law will have dire consequences to franchisees, franchise employees, and the economy as a whole,” Amador added. He also charged the NLRB with advancing an agenda that was hostile to small businesses, such as franchises.

The NRF issued a scathing statement alleging that the NLRB was serving as “an adjunct for organized labor” and attempting to make it easier to unionize whole industries.

Beyond the NLRA: Joint Employment and the FLSA

Employers fear that if the NLRB GC’s joint employment determination regarding McDonald’s is allowed to stand it could have an impact on areas such as wage and hour, where joint employment is also a factor in determining financial liability.

Under the Fair Labor Standards Act an employer is defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Determinations of who is, or is not, an employer have been subject to a number of different tests in court cases over liability issues, most of which center on establishing the level of control a franchisor has over a franchisee’s business.

Essentially the FLSA’s joint employment test looks at whether: two employers are sharing employees’ services so as to interchange employees; the employers are under common control and share employees; and one employer acts in the direct interest of the other.

If two companies are found to be joint employers both companies can be held individually responsible for any overtime and unpaid wages, among other liabilities.

Employer Take-away

The McDonald’s case is at the beginning of the NLRB process, but the case bears watching for any employer that is vulnerable to potential joint employer claims. A change in how joint employment is defined by federal agencies could ultimately lead to changes in the broader franchising industry. Media reports are already predicting a potential for the case to make it all the way to the U.S. Supreme Court if the board sticks by the GC’s determination. The potential liability for employers that use a franchise model is steep, even for companies that aren’t as large as McDonald’s, and the case could set a dangerous precedent moving forward in how joint employment is defined in the workplace.

For more information on joint employment go to Thompson’s HR Compliance Expert (subscription needed).