Regulations

Franchisees May Need to Rethink Their Treatment of Franchise Workers

The National Labor Board (NLRB) is divided on a case involving McDonald’s and it’s workers viewed by many as one of the most consequential labor law precedents of the past decade.. Should corporate McDonald’s (the franchisor) and other similar corporations be liable for the treatment of workers at franchise locations? The answer, once seemingly clear, is now muddled.

The case against McDonald’s began in summer 2012 as McDonald’s employees and franchise owners feuded over wages. The employees in efforts to voice their desire for better pay and benefits, participated in strikes and other non-violent protests. McDonald’s franchise owners in response, purportedly provided disciplinary action such as reduced hours and overall poorer worker conditions against employees who participated.

The issue was brought to the attention of the NLRB. In 2015, the NLRB ruled in favor of the employees stating that the McDonald’s franchisors (corporate) were ultimately responsible for the conditions of the workers at the franchise restaurants through “indirect control.” The standard, referred to as the Browning-Ferris standard, established that a “joint-employer” relationship could exist through indirect control. In the underlying case, the court found that corporate McDonald’s, through a broadened definition of the term “joint-employer,” was liable for the punitive action taken against the workers by franchise owners, which in some cases resulted in employees not being paid and, in some instances, losing their jobs.

Prior to the Browning-Ferris standard, corporate McDonald’s would not have been responsible in addressing the worker’s complaints because “indirect control” was not a factor in determining a “joint-employer” relationship. Essentially, the view before Browning Ferris was the way the franchise owners carried out their franchise operations could and should not be tied, from a liability standpoint, to corporate McDonald’s. The broadened 2015 definition of “joint-employer” opened up potential legal issues for corporate franchisors like McDonald’s.

Fast forward to the Trump administration taking office.

In December of 2017, the NLRB overturned the Browning-Ferris 2015 decision, relieving the liability burden for corporate franchisors like McDonald’s. Indirect control was once again not enough to substantiate the existence of a joint-employer relationship between corporate and its franchises.

Then things got a little mixed up.

In February 2018, the December 2017 decision was retracted. As it turns out, the Republican majority that overturned the decision was invalid. The NLRB’s inspector general stated that the decision made in December should needed to be thrown out because a board member and Trump appointee, William Emanuel, should not have voted because of conflict of interest involving his former law firm. With the removal of his vote, the vote on the decision was tied at 2-2. Whether or not corporate McDonald’s and franchisors can be held liable for the worker conditions of invidual franchises is up in the air as a result.

Corporate McDonald’s has proposed a settlement to the NLRB, in which it has agreed to provide 100% of the back wages to workers who were alleged discriminated. The settlement does not, however, admit to corporate McDonald’s agreeing with the 2015 standard of joint-employer.

McDonald’s attorney Willis Goldsmith stated that McDonald’s will not agree to a settlement that agrees to the statement identifying the corporate restaurant as a joint-employer because the franchisees are considered by McDonald’s to be “independent business people.” As such, the behavior of franchise owners and franchisor should be viewed as separate.

In April, John Ring, was sworn in as the newest member of the NLRB. Whether his vote will go in favor of McDonald’s or the employees, remains to be seen. There is speculation that his vote could rule in favor of franchisors and remove the indirect control factor for determining joint-employer relationships.

What is certain, is that both franchisees and franchisors alike need to be aware of federal employee protections and similar state laws in the states in which they operate. Make sure that how you are classifying your employees is consistent with federal and state requirements. Make sure that your pay practices are in line with state requirements, as many state laws are changing to more rigorous enforcement of pay equity issues.

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Franchisees May Need to Rethink Their Treatment of Franchise Workers
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Franchisees May Need to Rethink Their Treatment of Franchise Workers
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Organizations should stay tune to the NLRB as it continues to revisit the definition of a joint-employer relationship
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First Capitol Consulting.Inc
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