Richard F. Griffin Jr., the General Counsel of the NLRB has ruled that McDonald’s Corporation is a joint employer of its franchisees’ employees. The rationale for the General Counsel opinion is that McDonald’s Corporation dictates certain standards of cleanliness, food preparation, and employment practices that the franchise owners must follow
To the extent that McDonald’s Corporation imposes employment practices on its franchisees, the “joint employment” doctrine may make sense.
But it is my impression after working with licensees and franchisees for many years that typically the franchisors go to great lengths to distance themselves from their franchisees’ hiring, firing, and management decisions. For precisely this reason—the franchisors do not want to be held responsible for what their franchisees do.
This NLRB General Counsel opinion has the potential to upend franchising as we know it. If franchisors can be joint employers, why should they bother franchising? As joint employers, they acquire the risks of having employees in all the locations where they license their operations. They multiply their employee bases far beyond what their in-house HR departments are prepared to handle. They could become liable for employment discrimination claims, wage and hour violations, FMLA and disability claims, and unfair labor practices charges.
Franchised operations touch the lives of most Americans every day.
- About 90% of McDonald’s restaurants are owned by franchisees.
- Many other restaurant and food chains are also largely franchise operation, such as Subway, Jimmy John’s, and Menchie’s Frozen Yogurt.
- Other small businesses also set themselves up under license or franchise agreements, in industries as diverse as Ace Hardware, Allstate Insurance, Cottage Care home cleaning, Geeks On Call, Hallmark Cards shops, and O’Reilly Auto Parts
Moreover, millions of Americans are employed by small business franchisees in almost every community in the U.S.
The NLRB General Counsel ruling imposes a huge hurdle on the development of small business. Many individuals wanting an entrepreneurial opportunity start by pursuing franchising. By making franchising less attractive to franchisors because it imposes costs on the franchisors, the ruling insures that fewer franchises will be made available.
It appears that this General Counsel opinion is politically motivated, and is a blatant attempt to foster unionizing attempts at large franchisors. It is no secret that labor would like to increase wages at small businesses across the nation and similarly would like to see more union members at these businesses.
The Service Employees International Union has supported increased wages and organizing efforts by fast food workers for years. It is far easier for SEIU and other unions to put pressure on one McDonald’s Corporation than on hundreds of franchisees across the nation.
If a majority of the five NLRB members (three of whom are Democrats and typically support unions) agree with the General Counsel, it is likely that McDonald’s will pursue this case through the federal courts, probably all the way to the Supreme Court. The joint employment issue is that important to both franchisors and franchisees—and to both labor and management representatives throughout the nation.
For more on this issue from a variety of news sources, see
McDonald’s Ruling Sets Ominous Tone for Franchisers (Wall Street Journal)
McDonald’s Ruling Could Open Door for Unions (New York Times)
McDonald’s loses big on labor ruling (Fortune)
In your opinion, should franchisors be responsible for employees of their independently incorporated franchisees?