The National Labor Relations Board's (NLRB) General Counsel this week served notice that McDonald's could be treated as a joint employer with its franchisees in various complaints alleging employee mistreatment at franchised McDonald's outlets.
The media has characterized this "pivotal" move as "setting an ominous tone for franchisors" and "igniting a business-labor firestorm." There are, however, a couple of points of perspective that should first be clarified in considering the impact of this event.
First, notwithstanding the terminology used by the majority of media outlets reporting on the story, there has been no "ruling" -- by the NLRB or otherwise. The story arose from a notice from the NLRB's General Counsel, Richard Griffin, Jr., that unfair labor practices as alleged in 43 of 181 complaints filed against McDonald's USA LLC (the McDonald's United States franchisor entity) since November 2012 have merit to proceed and, "complaints will issue and McDonald's, USA, LLC will be named as a joint employer respondent." So, the NLRB has not yet ruled on the matter – but the Board's chief prosecutor has made it clear what the NLRB's position is to be – McDonald's is a boss of its franchisee workers and liable for its franchisees' labor practices.
Second, the NLRB General Counsel's notice comes as no surprise to those who have followed the NLRB's recent efforts to re-engineer its "joint employer" standard. In fact, the NLRB is currently reconsidering that standard in another case, In Re: Browning-Ferris Industries of California, Inc., and that case will likely be decided before the McDonald's matter.
The NLRB - McDonald's dispute is no doubt significant – but its significance stems largely from the franchise context in which it arose. An adverse ruling could ultimately expose McDonald's and other franchisors to liability for the employment practices of its franchisees, and it would have the potential to upend well-settled law regarding the franchise business format in the United States.
Under the NLRB's current standard, one must exercise "direct and immediate control" over the employees in question to be held liable as a joint employer. The NLRB's notice does not provide any insight as to the General Counsel's analysis or basis for determining McDonald's "joint employer" status. However, supporters of the finding point to seemingly routine franchisor practices, such as tracking labor costs as a percentage of sales and measuring drive-thru service times, as evidence of McDonald's control over franchise operations. On the other hand, preliminary consensus from the franchise bar is that a typical franchise relationship simply does not create the level of control needed to find joint employer status and that there is a political agenda at work in the NLRB decision.
The NLRB General Counsel's finding is the first step in what could be a protracted process for McDonald's . If the parties to the charges cannot reach a settlement, complaints will be issued, followed by hearings in front of an NLRB Administrative Law Judge, followed by appeals to the NLRB (likely the entire panel) and then the U.S. Court of Appeals.
Franchisors should carefully monitor these cases as it signals a potential significant change in the risk profile presented by the franchise business format. To avoid liability for franchisees' missteps, most franchisors' franchise agreements limit the level of control they can exercise over their franchisees' employment practices. Ironically, if the NLRB has its way with McDonald's, franchisors may face liability for franchisee actions that they have intentionally removed from their sphere of contractual control.
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