The General Counsel of the National Labor Relations Board has authorized Regional Counsel in regional offices throughout the United States to issue 43 unfair labor practice complaints in cases involving claims that McDonald’s USA and its franchisees are “joint employers” and jointly liable.

A Shake-Up for Franchisors: NLRB issues 43 unfair labor practice complaints against McDonalds

These cases involve claims by workers at franchisee-owned restaurants that they were fired for engaging in worker protests and that McDonald’s Corporation, in part, was liable for their terminations.

Since each of these cases must be tried before an administrative law judge, appealed to the 5-person NLRB in Washington, DC, then tested before a federal court of appeals and, perhaps, taken before the U.S. Supreme Court, it may be several years before we know the standards that the NLRB and the courts will use to determine if a franchisor can be held liable for unfair labor practices committed by a franchisee.

Various legal theories and facts are at play here. Since the franchisee controls much of the day-to-day management of personnel, costs of business, and levels of profit; historically, many decisions against a franchisor brought by an employee against both the franchisor and franchisee have held that a sufficient arm’s length relationship existed in supervision and control of personnel. Specifically, this arises in employment decisions by the franchisee to protect the franchisor from liability for the franchisee’s labor violations.

More recently, however, some courts have focused on the franchisor’s detailed operating manuals dictating terms of franchisee employee engagement. In this context, this includes franchisor training so that all employees who:

  • present to the public,
  • conduct themselves alike,
  • wear identical uniforms and
  • serve in identical job classifications

are subject to the franchisor’s control of wages, are presented with the same disciplinary and termination forms, etcetera.

The NLRB, by authorizing the 43 complaints, announced a new legal theory that suggests that if a licensor regulates all other aspects of the licensee’s everyday operations, the licensor will be presumed also to control the licensee’s employment decisions.

If it comes to pass that a franchisor can be liable in these circumstances, franchisees can expect that franchisors will take a harder line in the licensing agreement, demanding that the franchisee pay for its defense costs and indemnify it if any damages result from the conduct of the franchisee’s workers.

At the same time, this change may relax some aspects of its operational controls, limit or even end its training functions for franchisee employees. Thus, this will eliminate all aspects of control and management of employment practices.

While predictions of doomsday for franchising are very premature, franchisees should take a close look at franchisor licensing agreements, operating manuals and, in particular, franchisor dictates affecting personnel administration. Franchisees faced with unfair labor practice charges will either take ownership of personnel decisions they made in their own right or point the finger at the franchisor and claim, “They made me do it!” 

While the NLRB’s new theory may carry some weight, even under its proposed new approach, a franchisor will look to find independent decision-making in the franchisee’s employment practices. Those practices would become an affirmative defense to help the franchisor defeat an unfair labor practice charge brought by a franchisee’s worker. If the theory is adopted, one long-range impact is that some franchisors may be eager to divest themselves of company-owned franchisees and may tailor licensing agreements principally to brand identification and advertising co-sharing matters, giving franchisees much more freedom in how they run their businesses.

The NLRB’s new theory may simply be an effort at judicial economy.

When 50,000 McDonald’s workers protest for a $15 minimum wage and some are disciplined by the franchisees, it is easier for the NLRB to conclude that the McDonald’s Corporation dictated this disciplinary response and should be responsible rather than handle the hundreds of unfair labor practice claims that could arise throughout the country.

Remember, the NLRB is a five-member board appointed by the President with US Senate approval and the consistent political affiliation is three Democrats/two Republicans or three Republicans/two Democrats. A number of theories adopted in NRLB decisions when a majority of its members are from one political party have been reversed only a few years later when the affiliated political party balance changes. Trade associations and lawyers sometimes raise issues like this one to a level of hysteria: “The sky is falling!” 

It isn’t.

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