Web Exclusive | March 2016 | By Bruce Horovitz

NLRB Opens Case Against McDonald’s

Supreme Court might ultimately decide who works for whom.
Top QSR leader McDonalds faces legal battle over franchisee liability and jobs.

Last week, the National Labor Relations Board (NLRB) opened its case against McDonald’s in court, claiming the quick-serve giant is liable for the actions of franchisees as a joint employer.

But the trial is not just about McDonald’s.

The outcome of the widely publicized legal case that’s trying to discern whether or not McDonald’s is ultimately responsible for the actions of its franchisees isn’t expected to be settled for two to three years, when most legal experts predict it will land in front of a newly formed Supreme Court.

The court’s decision won’t just affect McDonald’s; the precedent set by this case will have an impact on the entire fast-food industry and, more broadly, the multi-billion-dollar franchising industry in the U.S., from hotels to health clubs to convenience stores. But because many of the largest and most successful franchise systems are fast-food chains, that’s where the jolt will likely be felt most strongly.

“This would represent a sea change in how franchisees and franchisors deal with each other,” says Paul Millus, an attorney who concentrates on employment litigation at Meyer, Suozzi, English & Klein P.C.

The story stretches back nearly four years. That’s the period during which legal motions have pinged back and forth over whether McDonald’s shoulders the responsibility—or at least some of it—for alleged violations of labor laws from its franchisees.

Everything changed late last summer, when the NLRB, in a split decision, adopted a broader standard for determining joint-employer status.

Last week, the case finally saw it’s first day in court. But many believe it will snake up the legal food chain over the next year or two before finally falling in the lap of the Supreme Court.

“This would represent a sea change in how franchisees and franchisors deal with each other.”

At its roots are the hundreds of complaints lodged by fast-food workers who claim they were illegally punished after protesting for higher wages. That’s when the NLRB’s general counsel shocked the franchise world by charging that McDonald’s Corporation could be held equally liable for violations committed by franchisees. In the end, if it were upheld, hourly workers conceivably would have the right to unionize and bargain directly with executives at McDonald’s headquarters in Oak Brook, Illinois.

For McDonald’s, it’s a high-stakes legal bid to prove that the corporation bears no legal responsibility for the day-to-day operations or actions of its franchisees, such as how much employees are paid or how their hours are scheduled.

“This campaign is an attack by the union and its allies on corporate restaurants, franchised restaurants, and on all restaurants,” said Willis Goldsmith, a partner at the law firm Jones Day, representing McDonald’s Corporation, at last week’s session.

For franchisees, it’s a potential muddle that could place them increasingly at the mercy of corporate dictums—and one that could complicate making local decisions.

“As a franchisee, why would I want McDonald’s Corporation involved and meddling in my company?” asks Steve Hirschfeld, founding partner of the law firm Hirschfeld Kraemer LLP.

But there’s still confusion aplenty about who is or isn’t a joint employer, points out Harold Kestenbaum, an attorney who specializes in franchise law. Last summer, the NLRB also issued a so-called “advice memorandum” noting that, as a franchisor, Freshii, the Toronto-based fast-casual chain, was not a liable “joint employer” for alleged unfair labor practices of a franchise operator located in Chicago. That memo, however, did not carry the rule of law.

How will it all ultimately resolve?

“I have no dog in this hunt, but I see both sides of the argument,” says Millus, who says the outcome can’t be projected until the status of the Supreme Court vacancy becomes clear. But, he says, “It will be life-changing for the business world if the joint-employer theory prevails.”


The NLRB has be pursuing McDonald's since the end of 2012, and the aftershocks haven't abated yet. The national implications for franchising are immense; however, there are advances at the state level. For one, Texas enacted Senate Bill 652, that took effect September 1, 2015, entitled, "An Act relating to excluding a franchisor as an employer of a franchisee or a franchisee's."
And Texas isn't alone. There are some 14 or more additional states that have enacted or are enacting similar legislation in response to the NLRB's overreaching actions. Often federal law trumps state law, but we see the forces lining up, and the battle lines being drawn.
The NLRB is supported by the labor unions, and most small business owners and franchisees are opposing this threat to free enterprise. The fact that individual state legislatures are siding with business owners evidences the seriousness of the outcome in court of the joint-employer argument. Like any good fight, you're on one side or the other. This is a fight business owners, especially food-related franchisees can't afford to lose. Are you committed or just involved? The difference is simple: it's like eggs & bacon—the chicken was involved, the pig was committed. Don't be a chicken.

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