United States: The NLRB Refuses To Require Its General Counsel To Explain The Joint Employer Case Against McDonald's

Last Updated: August 18 2015
Article by Michael J. Lotito and Elizabeth Parry

The National Labor Relations Board continues the string of controversial moves in its unfair labor practice cases against McDonald's.  In December 2014, the NLRB's General Counsel filed thirteen complaints naming the franchisor, McDonald's USA, as a joint employer for alleged unfair labor practices of various local franchisees. On August 14, 2015, the Board issued a decision affirming an Administrative Law Judge's decision denying McDonald's USA, LLC's motion for a bill of particulars.1 A bill of particulars would have required the General Counsel to specify the particular facts and law that support its theory of joint employer liability.

The Board concluded that "the allegations in the complaint are sufficient to put McDonald's on notice that the General Counsel is alleging joint employer status based on McDonald's control over the labor relations policies of its franchises."2 The Board's decision puts McDonald's in a difficult situation.  The Board is unwilling to require the General Counsel to specify the facts and legal theory underlying its case.  However, nowhere in the 150 pages of the thirteen complaints does the General Counsel elaborate on McDonald's USA's alleged control over its franchisees.  Each allegation is specific to the franchisee's location and involves alleged actions by local management. The complaints provide only a conclusory statement that the franchisor "possessed and/or exercised control over the labor relations policies or practices" of its franchisee's employees, and "has been a joint employer" of the employees. The Board's decision makes it almost impossible for McDonald's to defend against these unprecedented allegations.

Members Miscimarra and Johnson agreed in a dissenting opinion that the denial of the bill of particulars creates an "acute due process problem."3 The dissent noted that the pleadings in this case fail to provide McDonald's with adequate notice of the basis for a violation.  The dissent emphasizes that the Administrative Procedures Act requires parties to be provided notice of the "matters of fact and law asserted.4 Since the General Counsel has announced outside of this case that it intends to pursue a completely new and broader joint employer theory than existing case law, the complaint provides no notice of what joint employer standard the General Counsel is using.  Accordingly, the dissent finds the complaint so vague that McDonald's cannot defend against the General Counsel's case.

Currently, the Board finds joint employment only when one company exerts direct and immediate control over essential terms and conditions of employment of another company's employees, including hiring, firing, discipline, supervision and direction.5 The Board has not held franchisors jointly liable for its franchisees' labor relations policies for almost four decades.  In 1968, the Board declined to find joint employment, or franchisor control over the labor relations of a franchisee, based on a 7-Eleven franchisee's use of the trade name and operational system.6 In another 1968 case, Tilden, S.G., Inc., the Board found that standardized operational requirements kept the quality of the brand from being eroded, but did not indicate joint employment.7 Similarly, in the 1979 case, Love's Barbeque, the Board found that a franchise agreement requiring "strict compliance" with standard operating procedures and policies was insufficient to sustain a joint employer finding.8

In a case currently pending before the Board, Browning Ferris, the General Counsel publicly announced that it intends to pursue a broader theory of joint employer liability.9 The Board has yet to release its long-awaited decision in Browning-Ferris.  Many expect that decision to be released in the coming days before Member Harry I. Johnson's term expires on August 27, 2015.

In his Amicus brief in the Browning Ferris case, the General Counsel asserts that companies may effectively control wages by controlling other variables in the business.10 The General Counsel moves the analysis away from day-to-day control over employment conditions to operational control at the system-wide level.  The General Counsel would find joint employment based on direct control, indirect control, potential control and when "industrial realities" make the company a necessary party to meaningful collective bargaining. 

In the franchising setting, franchisors have no direct control over a franchisee's employees.  However, the General Counsel believes the franchisor can exert significant control over the day-to-day operations of their franchisees by dictating the terms of the franchise agreement.11 The General Counsel urges the Board to adopt a new standard that considers the totality of the circumstances including how employers structure their commercial dealings with each other. Even if the Board issues its decision in Browning Ferris in the coming weeks, as the dissent correctly points out, fairness and due process require that the ALJ be bound by existing precedent on the joint employer standard.

The dissent also believes that the Board's decision wastes the Board's resources given the substantial risk of reversal on the basis of deficient pleadings.  The dissent believes that the Board's defense of its decision not to require a bill of particulars "predictably will be followed by huge expenditures of time, money and human capital."12 The dissent argues that this risk is easily resolved by granting the motion for the bill of particulars. 

The Board's decision in McDonald's, and any new joint employer standard adopted in the Board's anticipated Browning Ferris decision, will apply to all businesses, not just franchises.  If the NLRB adopts the General Counsel's proposed joint employer rule, the NLRB will inject itself into complex business relationships across all industries. The rule could impose new bargaining obligations on joint employers or give unions the right to strike or picket at any business location belonging to either employer, not just locations operated by the employer involved in the dispute. When joint employer status is established, both entities may be liable for the other's unfair labor practices, including unlawful discipline or discharge of employees under the NLRA.  The NLRB standard would likely be adopted by other federal agencies such as the EEOC, the Department of Labor and OSHA.13 A new joint employer rule by the Board would have widespread economic consequences on numerous existing business models.

Footnotes

1 See McDonald's USA, LLC, a joint employer, et al, 362 NLRB No. 168 (2015). In the alternative, McDonald's requested that the ALJ strike the joint employer allegations and dismiss the complaint.

2 Id. Slip Op. at p. 1.

3 McDonald's USA, LLC, 362 NLRB Slip Op. at p. 1.

4 Id. Slip Op. at p. 2. Emphasis in original.

5 See Airborne Express, 338 NLRB 597(2002); Flagstaff Medical Center, 357 NLRB No. 65 (2011) enforced 715 F.3d 928 (D.C.Cir. 2013); Lareco Transportation, 269 NLRB 324 (1984); TLI, Inc. 271 NLRB 798 (1984) enforced 772 F.2d 894 (3d Cir. 1985); N.L.R.B. v. Browning-Ferris Industries of Pennsylvania, 691 F.2d 1117 (3d Cir. 1982).

6 The Southland Corporation dba Speedee 7-Eleven, 170 NLRB 1332 (1968).

7 Tilden, S.G., Inc., 172 NLRB 752 (1968).

8 Love's Barbeque Restaurant No. 62, 245 NLRB 78, 105 (1979) enforced in relevant part 640 F.2d 1094 (9th Cir. 1981).

9See Browning Ferris Industries of California, Inc., NLRB Case No. 32-RC-010968 currently pending before the Board. The Division of Advice has also applied the General Counsel's proposed joint employer standard in determining whether to issue a complaint against a franchisor in NLRB Office of the General Counsel Advice Memorandum, Nutritionality, Inc. dba Freshii, Case No. 13-CA-134294 (Apr. 28, 2015) at p. 6.

10 The General Counsel cites David Weil, Enforcing Labor Standards in Fissured Workplaces: The U.S. Experience, 22 THE ECON. & L. REV. 33, 36-37 (2011). Mr. Weil is currently the Administrator of the Wage and Hour Division of the U.S. Department of Labor.

11 Amicus Brief at p. 14.

12 Id. Slip Op. at p. 3.

13 For instance, former franchisee employees filed a complaint jointly against McDonald's USA, LLC and the franchisee alleging discrimination in violation of Title VII after receiving an EEOC right to sue letter. Complaint filed in Betts v. McDonald's, No. 415cv00002 (W.D. Va. Filed January 22, 2015).

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