In a decision that could have far-reaching legal implications for franchisors, on July 29, 2014, the General Counsel of the National Labor Relations Board (“NLRB”) ruled that McDonald’s was a joint employer of its franchisees’ employees. This decision stems from allegations that McDonald’s and its franchisees violated employees’ rights following protests pertaining to wages and working conditions.
Under long-standing NLRB precedent, a joint employer relationship may be found where one company possesses control over another company’s employees. Typically, the NLRB looks for evidence showing that the joint employer meaningfully affects employment matters such as decisions regarding hiring, firing, discipline, supervision or direction of another employer’s employees. Because the General Counsel’s reasoning for his decision is not published, the specific basis of the General Counsel’s decision remains unknown; however, factors such as a franchisor requiring (or strongly recommending) franchisees to maintain common policies, dress code, work rules and/or performance standards are among those that might be considered by the NLRB in deciding joint employer status.
The NLRB’s decision is troubling; however it is likely merely the opening salvo in an undoubtedly lengthy legal battle. The General Counsel’s decision authorizes the NLRB to proceed with unfair labor practice charges against McDonald’s and its franchises. Initial proceedings would be conducted before an NLRB Administrative Law Judge (“ALJ”). Any decision by the ALJ is subject to appeal to a three-member panel of the NLRB (the NLRB could, and in this case may be likely to, opt to have the entire Board participate in the decision), and any ruling by the NLRB may be appealed to a federal circuit court of appeals.
This is not the first time the question of joint employer status of franchisors and franchisees has been raised. Over the last several years, several state courts have examined the issue. Those decisions, however, have dealt with more limited state law issues. Ultimate success by the NLRB in treating McDonald’s as a joint employer with its franchisees could have far-reaching consequences for the franchise model in the U.S. Today’s franchise relationships are a balance between franchisors imposing enough control over their franchisees’ business to ensure a uniform experience for customers and the franchisees controlling day-to-day operations of their businesses. The franchise model is often attractive to franchisors because it enables them to grow their brand with less financial outlay than opening its own locations and is attractive to franchisees because they get to open their own business with the safety net that the franchisor provides through systems and support. Treating franchisors and franchisees as joint employers may force franchisors to reconsider their relationships with their franchisees in fundamental ways that will impact the desirability of franchising to both parties.