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Labor Lawsuit Would Set Precedent By Punishing McDonald’s for Franchisees’ Actions

McDonald's currently faces a potentially precedent-setting lawsuit in which the National Labor Relations Board hopes to punish the fast food chain for labor violations allegedly committed by its franchisees. Given the fact that franchises are unique businesses that hire their own employees and set wages and workplace policies on their own, setting the precedent that franchisors are on the hook for the mistakes of franchisees could destroy the franchise business model.

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Barry Donegan
Barry Donegan is a writer, musician, and pro-liberty political activist living in Nashville, TN. Donegan served as Director-at-Large of the Davidson County Republican Party from 2009-2011 and was the Middle Tennessee Regional Coordinator over 30 counties for Ron Paul's 2012 Presidential Campaign. Follow him at facebook.com/barry.donegan and twitter.com/barrydonegan

The National Labor Relations Board filed 19 consolidated complaints back in December of 2014 on behalf of workers at individual McDonald’s franchises that were allegedly punished for participating in Service Employees International Union strikes aimed at pressuring their employers to raise their wages to $15 per hour. However, rather than just targeting the franchise owners who are responsible for determining the wages, employee policies, and working conditions at those restaurants, The Wall Street Journal notes that the NLRB also added McDonald’s to the complaints as a joint employer, despite the fact that the company does not employ the individuals in question and merely provides franchise branding for the small business owners running specific McDonald’s franchises.

McDonald’s emailed CNBC in response to the allegations and said, “These Unfair Labor Practice allegations are driven in large part by a union-financed campaign, now more than several years old, which has targeted the McDonald’s brand and impacted McDonald’s restaurants… The board’s mirroring of the union’s position in this matter represents an overreach and contradicts decades of case law. McDonald’s serves its 3,100 independent franchisees’ interests by protecting and promoting the McDonald’s brand and by providing access to optional resources that help them run successful businesses. This relationship does not establish a joint employer relationship under the law.”

Trade groups including the US Chamber of Commerce and the International Franchise Association have expressed their opposition to the potentially precedent-setting decision by the NLRB, citing the fact that holding franchisors responsible for the activities of franchisees exposes franchisors to significant legal risks, effectively destroying the independent nature of the franchisee relationships that so many small business owners rely on to start new businesses in the community without having to build a brand-new brand from scratch.

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The case formally began on Monday as McDonald’s asked the NLRB through a motion for a bill of particulars to explain the rationale behind which it believes that McDonald’s could be listed as a joint-employer for workers employed by individual franchisees. The Washington Examiner pointed out the fact that the NLRB’s lawyers refused to answer that question and may not provide that rationale until May of this year. The case is expected to be decided by 2016, though appeals could eventually result in the case being heard by the Supreme Court.

A speech by NLRB general counsel Richard Griffin may have contained some clues as to what that argument might look like. “They have programs that run an algorithm that say once these costs get to a certain percentage of these costs, you have got to start sending people home. Now, that type of involvement in the hour and terms and conditions, we argue, goes beyond protecting the brand,” said Griffin.

A former McDonald’s lawyer told The Washington Examiner that the algorithms provided by franchisors would not constitute meddling in employment practices if the software simply makes recommendations without McDonald’s officials specifically mandating who to hire or fire. “My guess is that all this is a happening without human intervention. They’re just giving them the tools to run their business,” said the attorney.

McDonald’s is also facing another lawsuit due to the labor practices of a Virginia franchise that allegedly engaged in wrongful termination practices on the basis of race.

The uncertainty over the future of the franchise business model is reportedly causing would-be franchisees to sit on the sidelines waiting for a decision in this case, rather than starting new businesses. According to CNBC, Littler’s Workplace Policy Institute co-chair Michael Lotito said, “I am hearing of prospective franchises who are not buying licenses to operate due to the uncertainty… Franchisors and franchisees are having issues trying to figure out how to renegotiate their franchise agreements as they assume separate employer status. If that changes, how does that impact the contract? No one really knows.”

SourceCNBC
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