Industry News | August 5, 2014 | QSR Exclusive Brief

Joint-Employer Ruling for McDonald's Could Change Franchise Business

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The franchise business model could be in for a shake up if last week's joint-labor ruling regarding McDonald's holds up through the appeal process. Last Tuesday, the general counsel of the National Labor Regulations Board (NLRB) found the fast-food giant potentially liable for labor violations brought against its franchisees. Industry experts say it's a dangerous precedent for the quick-serve industry—and one that goes against at least 30 years of established case law.

"For the last 30 years, if not longer, when you had complaints of unfair labor practices, and also wages or anything like that, you would file a complaint and maybe try to bring corporate into that," says Angelo Amador, vice president of labor and workforce policy for the National Restaurant Association (NRA). "But the standard has always been that if the other employer does not have decision-making authority over the hiring, the firing, the compensation, the hours, and all of those things, then that other employer is not liable."

As a joint employer, McDonald's could be liable for the 181 claims against its franchisees currently under review by the NLRB. Amador says the ruling goes against the historic definition of a joint employer. Under the analysis of the general counsel, control over aspects of the franchised business included factors such as uniforms regulations, the menu, the price, and the location, he says. "They’re looking at a lot of things that are unrelated to employment. It’s a big stretch in our opinion and is not current law."

In a statement released last week after the decision, McDonald's asserted it would appeal. If the ruling stands, it could pave the way for unionization in the quick-service industry, experts say.

"There are two ways workers can benefit from this decision," says Catherine Ruckelshaus, general counsel and program director for the National Employment Law Project (NELP). "Often times franchisees are small and under capitalized ... so they might not be able to fix all the problems. It's good to have more than one entity responsible."

The second benefit is that employers like McDonald's are more likely to employ more oversight at franchised units to reduce complaints, she says. Ruckelshaus adds that the factors of the decision were not unprecedented, and the NLRB "looks for whether or not the entity shares or codetermines the working conditions, and a lot of things can factor into that."

NRA's Amador says the ruling could limit the freedom franchisees have if McDonald's does employ more oversight. "If we’re going to have a change of this magnitude, it should be done through the regulatory process," he says. "Then employers can adapt as well instead of acting retroactively."

By Tamara Omazic