In a union-friendly determination that could significantly impact the franchise model, the National Labor Relations Board Office of the General Counsel issued an advice memorandum on July 29, 2014 allowing 43 complaints filed against both McDonald’s, USA, LLC, the franchisor, and individual franchise restaurants to move forward under the theory that they are joint employers.

The McDonald’s announcement comes on the heels of a May 12, 2014 notice from the NLRB Office of General Counsel requesting input on whether to change its 30 year old “joint employer” standard, discussed in a recent Bullard Alert. The NLRB’s joint employer standard is a method for determining whether two independent entities both employ an individual. Under the current standard, in order to establish joint employer status under the National Labor Relations Act, “there must be a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction." TLI, Inc., 271 NLRB 798 (1984); Laerco Transportation, 269 NLRB 324 (1984). The General Counsel’s McDonald’s advice memorandum is further evidence that the NLRB’s goal is to broaden the joint employer standard.   

McDonald’s almost certainly will challenge any determination that it is a joint employer. Such a challenge would have merit. McDonald’s does not establish the terms and conditions of employment for the franchisees’ employees, nor does it control employee personnel actions in the franchise locations. 

The General Counsel directing the regional offices to name McDonald’s as a joint employer is only the first step in finding McDonald’s liable for its franchisees’ labor practices and requiring it to bargain with unions. Next, the charges will be brought before the NLRB’s administrative law judges (ALJs). If the ALJs agree with the General Counsel that McDonald’s is a joint employer, then the company would have the opportunity to appeal those decisions to the National Labor Relations Board in Washington, D.C. If the NLRB rejects those appeals and affirms the ALJs’ rulings against McDonald’s, then the company’s next step would be to challenge the rulings in the federal courts. The issue could potentially find its way to the United States Supreme Court. 

Practically, the General Counsel’s determination that McDonald’s is a joint employer could affect franchise businesses across many industries. If the determination is upheld, franchisors could potentially face liability for franchisee employment practices, which could in turn motivate franchisors to exert greater control over franchisee employment decisions. Further, portions of existing franchise contracts that hold franchisors harmless from franchisees’ employment practices may be rendered invalid. 

The General Counsel’s determination, if upheld, could also potentially make it easier for employees to organize by erasing the presumption that a bargaining unit is limited to a single franchise location. Additionally, both the franchisee and the franchisor could be required to bargain with unions over terms and conditions of employment, creating inefficiencies and making Collective Bargaining Agreements more difficult to ratify.   

Bullard Law will continue to follow developments related to the McDonald’s matter and the joint employer standard. Please feel free to contact us anytime with questions about these cases or any other labor, employment, or benefits issues of interest or concern to you.