GABRIELLA BRAGA – The National Labor Relations Board (“NLRB”) will soon decide whether companies may be held liable for labor violations carried out by their franchisees. This comes after the NLRB Office of the General Counsel authorized complaints against McDonald’s franchisees and determined that McDonald’s, USA, LLC was a “joint employer.” Joint employer liability requires that the non-employer franchisor, in this case McDonald’s, be held liable for labor violations to the same extent as the worker’s franchisee employer. However, Heather Smedstand, McDonald’s senior vice president of human relations, explained “McDonald’s does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees – which are the well-established criteria governing the definition of a ‘joint employer.”
Generally, franchisees and franchisors operate as separate, independent entities. Franchisors are generally compensated for the use of their trademarks and marketing scheme, while franchisees hire their own employees and run their own business. The NLRB ruling will hold the franchisors more accountable for their actions.
The NLRB’s decision could create far-reaching implications to the franchise business model. Employment issues, such as wages and working conditions, which have traditionally been the concern of franchisees, will now be under the franchisors’ control, essentially turning franchisees into company employees.
Franchise groups have claimed that the shift will reduce franchisees’ independence and raise costs for franchisors. Meanwhile, labor activists believe that if franchisors are deemed joint employers, they will be forced to take system-wide action on issues, such as minimum wage, instead of pushing the issue onto franchisees.
“Employers like McDonald’s seek to avoid recognizing the rights of their employees by claiming that they are not really their employer, despite exercising control over crucial aspects of the employment relationship,” said Julius Getman, a labor law professor at the University of Texas, in a New York Times interview. “‘McDonald’s should no longer be able to hide behind its franchisees.’”
The NLRB has investigated charges alleging that McDonald’s violated the rights of its employees after certain employee protests. The protests are part of a nationwide campaign to get fast-food companies, such as McDonald’s, to increase their minimum wage to $15 an hour and to allow employees to form unions without the fear of retaliation. McDonald’s is accused of retaliating against employees who participated in these protests by either, reducing their hours or discharging them all together.Of the 181 investigated cases, 43 were found to have merit. In the 43 cases where a complaint was authorized, both McDonald’s franchisees and McDonald’s, USA, LLC will be named as respondents if the parties are unable to settle. It is important to note that the NLRB General Counsel’s decision is not a binding NLRB ruling and McDonald’s has made clear that it will appeal any such rulings.
