On Tuesday, The National Labor Relations Board’s General Counsel issued a decision related to McDonald’s restaurants that could have a major impact on the way in which U.S. franchising works. The decision allows 43 complaints by workers against McDonald’s franchisees to proceed. (Unlike most legal disputes, worker rights complaints are screened for merit before being allowed to to proceed to legal action). More significantly, the decision allows the complaint to include both the franchise owner and the franchising company–or, using the legal term, “joint employer.”
The stakes are high as it could expose corporate McDonald’s to liability for management practices of franchisees. Likewise, it could impose certain regulations and requirements to the franchisees, currently viewed as independent (and mostly small) businesses.
As can be expected, associations representing franchisees and franchisors were quick to object to the decision, “This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors,” said International Franchise Association CEO Steve Caldeira.
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“Franchisees and their employees do not work for franchisors…Franchisees have their own employer identification number with the Internal Revenue Service and file their own taxes. Franchisees establish day-to-day operations, employment practices and policies for their own businesses. Franchisees decide who to hire and fire, and also set wage rates, benefits and employees’ work schedules.
“If franchisors are joint employers with their franchisees, these thousands of small business owners would lose control of the operations and equity they worked so hard to build. The jobs of millions of workers would be placed in jeopardy and the value of the businesses that employ them would be deflated.”
The decision also comes in the context of the Service Employees International Union (SEIU) seeking to unionize franchise chains like McDonald’s. “Organizers had been pushing to get McDonald’s named as a joint employer at franchised restaurants, a move intended to give them a centralized and powerful target,” according to AP. Heather Smedstad, senior vice president of human resources for McDonald’s USA, told AP the company has never been determined to be a joint employer in the past and that it would fight the decision by the labor board.
“If franchisors are joint employers with their franchisees…thousands of small business owners would lose control of the operations and equity they worked so hard to build,” said IFA’s Caldeira.