The NLRB’s Case Against McDonalds Could Reshape Labor Relations Across Industries

Authored by Corey L. Franklin

Jul 31, 2014

In recent years, Big Labor and various union-backed groups like Fast Food Forward and Fight for 15 have staged protests, strikes, boycotts, and pickets in an effort to organize restaurant workers and advocate for significant increases in the minimum wage. After all the bluster, fanfare, and media attention given to the protests, the most significant aspect of these events has nothing to do with your local fry cook, but everything to do with Big Labor’s effort to find relevance in the modern era.

In the course of staging demonstrations against McDonald’s franchisees, a number of employees, backed by the Service Employees International Union (SEIU), filed charges with the National Labor Relations Board (NLRB) alleging they were subjected to various unfair labor practices and that both McDonald’s and its individual franchise owners are at fault. Current law does not support the proposition that McDonald’s would be liable for employment-related decisions of its franchisees, who own and operate their restaurants as independent small businesses. Big Labor, however, knows that if large restaurant franchisors and its franchisees are deemed joint employers, it will dramatically improve its ability to organize their employees so they can collect union dues from them.

The NLRB investigated these allegations, as well as whether the individual franchise owners and McDonald’s jointly employed the complaining workers. Under current NLRB law, two companies can be deemed joint employers if one “directly controls” the labor relations, terms and conditions of employment, etc. of the other. Under a test long since abandoned, joint employer status would be found if one entity had “substantial control” over the employment practices of another. Big Labor has, for decades, fought for a return to the less strict “substantial control” test.

Yesterday, NRLB General Counsel Richard F. Griffin, Jr. found merit in 43 of 181 claims against both the individual franchisees and McDonald’s, having determined that McDonald’s and its franchisees are joint employers – presumably under the long-since-abandoned “substantial control” test. If the parties are unable to settle the dispute, a complaint will be issued and the matter will proceed to trial before an Administrative Law Judge who will be tasked with determining both the appropriate standard to apply and whether McDonald’s is a joint employer with its franchisees.

The General Counsel’s determination runs contrary to decades of established law regarding franchised businesses. . The ruling, if adopted by the Board, will substantially erode the franchisor-franchisee relationship and have wide ranging impact across industries and subject matter. For example, under the General Counsel’s analysis, general contractors would be joint employers with sub-contractors, as would temporary agencies and their clients. Moreover, in communities like Seattle, where local minimum wage ordinances apply only to large businesses, small franchisees may be compelled to significantly increase wages to $15.00 per hour if deemed to be joint employers with their franchisor (McDonald’s, Wendy’s, etc.). Notably, the Congressional Budget Office (CBO) reported that an increase to only $10.10 could kill up to one million American jobs.

Inevitably, this is but the first stage in what will be a long and protracted legal fight that may ultimately end up before the Supreme Court. In the interim, however, employers must be prepared to defend against the assertion of joint employer status under the “substantial control” test. This means special attention must be given to agreements and business arrangements with temporary agencies, sub-contractors, and franchisors to minimize legal exposure for both parties.

If you have any questions about the NLRB’s joint employer analysis or any other labor relations matter, please do not hesitate to contact Corey Franklin, R. Michael Lowenbaum, D. Michael Linihan, Robert Seigel, or David Frenzia.

Page 1 of 11