NLRB Decides McDonald’s Franchises and Parent Company are Joint Employers, Company Now Potentially Liable in Dozens of Lawsuits Against Franchisees

On July 29, 2014, the General Counsel Richard Griffin of the National Labor Relations Board ruled that franchisor McDonald’s, USA, LLC, is a joint employer with each of its 31,000+ franchises. The NLRB will therefore name the corporation as a respondent in each of the sixty-four lawsuits currently pending against McDonald’s franchises, whenever these lawsuits are not settled by the parties. Thus, the corporation will now be accountable for working conditions at all of its franchises; it will no longer be able to avoid liability by shifting it to franchisees.

Critics claim that the NLRB decision strikes a blow–perhaps a fatal one–against the franchise model used by many of the country’s largest companies. The fast food industry is particularly invested in the franchising business model; for example, 90% of McDonald’s 14,000 restaurants in the U.S. are owned by franchisees. Advocates of the franchise model such as McDonald’s’ human resources president Heather Smedstad complain, predictably, that “activist” NLRB judges have “change(d) the rules for thousands of small businesses, and (gone) against decades of established law regarding the franchise model in the United States.” They claim that the franchise model is needed in order to “run successful businesses as part of a system that every day creates significant employment, entrepreneurial and economic opportunities across the country.”

A series of recent studies, publications, and government proceedings have focused on questions about economic and legal aspects of the franchise system. In recent hearings by the United States House of Representatives, the National Restaurant Association complained that the NLRB was actively trying to change the joint employer standard in ways that “would be bad for workers, employers, franchisors, and the economy.” They argued, for example, that McDonald’s exercises too little oversight and control over its franchises to be treated as a joint employer.

The Department of labor’s Wage and Hour Division is considering similar measures; Division administrator David Weil was the principal investigator for a DOL report entitled “Improving Workplace Conditions through Strategic Enforcement: Report to the Wage and Hour Division Strategic Enforcement.” In the report, Weil argues that the “fissuring” of the employment relationship under franchising arrangements tends to promote wage-and-hour noncompliance. His concern, he told the U.S. Senate, is not with the franchise model itself, but with the use of franchising by employers to subvert the law.

As we have recently written here, there have been several recent strikes, and threats of strikes, by fast food workers nationwide. Some pro-business advocates have expressed concern that the NLRB decision about franchisor accountability will open the floodgates to unionization in sectors of business that have been generally successful at thwarting union activity.

If you are an employee and you believe your rights under the Fair Labor Standards Act or the National Labor Relations Act have been violated, please contact The Harman Firm, LLP.