McDonald's ruling holds franchisors accountable for franchise employee allegations
Throughout the past two years of accelerating wage protests and allegations of wage theft practices, McDonald's has reiterated that it is not directly responsible for such grievances, claiming its franchisees act as independent owner-operators that set their own policies.
But that position was shot down by the National Labor Relations Board on Tuesday, in a ruling that is expected to have big implications for the franchising model as a whole. The NLRB's general counsel called McDonald's Corp. a "joint employer" alongside its franchisees, in response to labor complaints that boiled over into a wave of class action suits filed in March.
There have been more than 180 cases filed with the NLRB involving McDonald's since November 2012.
Fast Food Forward, employees applaud the ruling
In a conference call following Tuesday's ruling, Micah Wissinger, an attorney representing NYC McDonald's employees, said this directive will leave it up to the regional directors to assess the merits of each complaint against McDonald's, and where they find merit, they are to name McDonald's as an employer.
"This news makes it clear that McDonald's is indeed an employer that exerts substantial power over employee working conditions," he said. "Despite their repeated assertions that they do not control franchise decisions, the reality is they require franchisees to adhere to their rules and regulations. McDonald's can no longer get away with reaping all the profits and benefits while saddling franchisees with the blame for low wages. This has widespread implications over the low-wage business model."
Kendall Fells, president of Fast Food Forward, said the NLRB's ruling adds to the "extensive allegations from earlier this year that shows the company is responsible" for the alleged violations.
"Today's charges strike at the heart of the low-wage business model, which passes the buck onto franchisees while the company rakes in a huge profit. McDonald's uses its huge power to control franchisees in myriad of ways," he said, adding that many workers are forced to live on public assistance.
Cathy Ruckelshaus, general counsel for the National Employment Law Project, said 70 percent of QSR employees are 20 years old or older and more than one-quarter of them are raising children, while one-third of them have a post-high school education.
"These are real jobs that families rely on to get by. Many of them only get part-time hours. More than half the time they have to rely on public assistance to make ends meet," she said, adding that a compromise is now necessary.
"Holding companies like McDonald's accountable will not portend the end of franchising. All it means is that corporations that exercise control over the franchise system cannot feign ignorance, especially when these acts flow from the business model that McDonald's imposes," she said.
The ruling also says McDonald's is responsible for other, non-wage complaints, such as health and safety issues. Pro-labor organizers are hopeful that McDonald's will now "come to the table and negotiate" with workers about their $15/hour wage requests and their ability to form a union.
'Erodes franchisor/franchisee relationship'
McDonald's, however, doesn't seem quite ready to wave the white flag. In a statement Tuesday, the company called any wage cases groundless. In a statement, the company said there is "no legal or factual basis for (the NLRB's) finding and we will vigorously argue our case. (McDonald's) also believes this decision changes the rules for thousands of small businesses and goes against decades of established law regarding the franchise model in the U.S."
The Golden Arches have plenty of allies, including the National Retail Federation, International Franchise Association, National Council of Chain Restaurants and the National Restaurant Association, which said that the ruling "overturns 30 years of established law regarding the franchise model," and "erodes the proven franchisor/franchisee relationship."
The NRA said the decision also jeopardizes the success of 90 percent of American restaurants that are franchisee or independently owned.
"By making franchisors liable for their franchisees' employment practices and redefining individually-owned business as ‘big business,' NLRB would disrupt the franchisor/franchisee relationship and impede entrepreneurship and restaurants' ability to continue to create jobs, particularly in an increasingly challenging economic environment," the NRA said in a statement. "The net effect is counterproductive and will indeed create ‘big business.'"
The International Franchise Association called the decision "wrong and unjustified," and said it would threaten the "sanctity of hundreds of thousands of contracts between franchisees and franchisors."
Steve Caldeira, IFA CEO, said millions of jobs are at risk because of the "radical" nature of the decision.
"Franchisees and their employees do not work for franchisors. The franchise owners who have built more than 777,000 businesses and employ millions of people control their own businesses. Franchisees have their own employer identification number with the IRS, and file their own taxes. Franchisees establish day-to-day operations, employment practices and policies. Franchisees decide who to hire and fire, set wage rates, benefits and schedules," he said.
Labor monitoring systems 'changed equation'
However, Wissinger said McDonald's measurement of labor through companywide software monitoring systems may have been the game-changer that debunked this argument.
"(McDonald's) ability to monitor and review (labor costs) in real time changes the equation," he said.
Attorney Edgar James, who brought forth the two cases in Michigan on behalf of about 1,500 employees at two Detroit area franchised locations, said in March that it is common for an employee to show up for work and be told not to clock in until this real-time data shows that labor costs have gone below a certain percentage number. The software that measures this data exists systemwide, he said.
Next on the agenda, according to Wissinger, is a hearing where both sides will present their evidence, followed by a decision by the 5-percent NLRB ruling board. McDonald's will now be a defendent is the cases brought before the NLRB against its franchisees in March.
"The general counsel has weighed in, essentially telling the different regions of the NLRB to now include McDonald's as an employer," Wissinger said.
McDonald's is more than 90 percent franchised. In 2013, the company made about $35.9 billion in the U.S.
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Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.