This post was contributed by Bruce D. Bagley and Lee E. Tankle of McNees Wallace & Nurick LLC’s Labor & Employment Practice Group.
Mainstream media, attorneys, and business owners are discussing the meaning and impact of a two paragraph press release issued on July 29 by the Office of the General Counsel of the National Labor Relations Board (NLRB). That Office is the "prosecuting arm" of the NLRB, and in the press release, the General Counsel indicated he has authorized the issuance of unfair labor practice (ULP) complaints against franchisor McDonald’s USA, LLC for the actions of its franchisees. In a typical franchisor-franchisee relationship, a franchisor, like McDonald’s, may contract with a franchisee to provide the latter with use of the franchise name, logo, processes, recipes, etc., in exchange for an upfront franchise fee and sales-based royalties. So is this press release declaring McDonald’s a "joint employer" with potentially over 13,000 United States franchisees the super-sized issue pundits have made it out to be?
Over the past two years, 181 ULP charges have been filed with the NLRB involving numerous McDonald’s restaurants. The charges arose largely from the termination of a number of fast food workers who had participated in various protests and union organizing efforts at McDonald’s franchised stores across the country. Per the General Counsel’s press release, 68 of those cases were found to be meritless, 64 are pending investigation, and 43 were found to have merit. In those 43 cases found to have merit, the General Counsel contends that the various franchisees and McDonald’s USA, LLC (the franchisor headquartered in Illinois) are "joint employers" and will therefore be named as parties to the complaints.
We have previously discussed the United States Court of Appeals for the Third Circuit’s views on joint employer status under the Fair Labor Standards Act (FLSA), a different federal statute.
Why all the hubbub now under the National Labor Relations Act (NLRA)?
Typically, the NLRB (and the reviewing federal courts) have found that franchisees are independent operations, that franchisors like McDonald’s USA, LLC are not responsible for decisions made by the franchisees about hiring, firing, wages, benefits, etc., and that consequently they are not joint employers with the franchisees. If the franchisor is deemed to be a joint employer with the franchisee, the franchisor can potentially be held liable for any violations of law engaged in by the franchisee. The General Counsel’s theory, if ultimately adopted by the Board, would no doubt render the franchisor-franchisee model much less appealing to the business community. Why would any company want to license its intellectual property and business model, losing out on potential profit, if the franchisor will be held responsible anyway for actions undertaken by the separately-owned franchisee?
Unions are of course thrilled with the General Counsel’s decision because they have consistently asserted that large franchisors like McDonald’s and Burger King have ultimate control over everything that goes on in their franchisees’ restaurants. Union activists, like those at the Service Employees International Union (SEIU), believe that by holding large franchisors as joint employers with the franchisees, workers can put more pressure on large fast food chains and other franchisors to improve employee benefits and raise wages—and perhaps even unionize McDonald’s/fast food workers nationwide rather than having to organize individual elections at each franchise location.
At this stage, this is only a prosecutorial determination by the NLRB’s General Counsel based on his opinion and investigation of the 40+ cases referenced above (notably the General Counsel provides no reasoning for his joint employer theory in the press release). And while his decision to authorize the issuance of Complaints is not a precedential court decision, Board Decision, or even a decision by an NLRB Administrative Law Judge, employers—especially franchisors and those who utilize contractors or subcontractors—should take heed of the General Counsel’s statement. Why? The General Counsel’s press release comes at a time when the NLRB itself has been reconsidering its whole approach to the joint employer issue. It is very likely that the pro-union Board will soon adopt a broader definition of the term "joint employer," once again making it easier for unions to organize employees.
What is an employer to do while we wait for a Board or court decision? If an employer is in what could be determined to be a joint employer relationship, the business may want to consider steps to further define boundaries between the two employers, in order to lessen the likelihood of a finding of joint employer status. At a minimum, employers should take reasonable measures intended to ensure that their business partners, franchisees, and subcontractors are in compliance with applicable federal and state employment laws. Stay tuned for further developments!