BIG MAC ATTACK: The NLRB’s General Counsel Uproots McDonald’s Franchisor-Franchisee Relationship

By: Sergio Simoes, Esq.

In July 2014, the General Counsel of the National Labor Relations Board (“NLRB”) shook the foundations of the franchisor-franchisee relationship when he determined that McDonald’s Corporation could be prosecuted as a “joint employer” with its franchisees in forty-three cases, charging unfair labor practices at its franchised restaurants. Consequently, whenever a McDonald’s franchisee fails to pay overtime, bars employees from taking mandated breaks, or commits another unfair labor practice, the McDonald’s parent organization may be held jointly responsible for the franchisee’s transgressions.

The General Counsel’s decision is particularly significant because approximately 80% of McDonald’s 3,000 U.S. restaurants are privately owned by franchisees. The NLRB and the labor organizers supporting the determination reasoned that because McDonald’s exerts significant operational control over how its franchised restaurants are run, including menu selections, uniforms, décor and other day-to-day operations, it should also be held responsible for violations of workers’ rights under the National Labor Relations Act.

McDonald’s has no ability to appeal the General Counsel’s action because the decision was merely an internal instruction rather than an official NLRB policy subject to appeal. The next phase of the proceedings will occur before administrative law judges hearing the merits of the employees’ claims against both McDonald’s and the individual franchisees. Should there be an adverse ruling against McDonald’s on any of the claims, the company will presumably seek review before the full five-member NLRB Board, contesting the General Counsel’s decision to prosecute the McDonald’s corporation as a joint-employer as a violation of long-established principles of the franchisor-franchisee relationship. Regardless of the outcome of that review, the issue will likely wind its way through the appeals courts and ultimately be decided by the United States Supreme Court.

The General Counsel’s action serves as a stark warning to franchise chains across the country that in the eyes of the NLRB, the corporate franchisor may be held accountable for the unlawful employment practices in every franchise location. Franchisors, such as McDonald’s, who place significant conditions on franchisees to ensure consistent branding of their products may find themselves in the NLRB’s crosshairs in its ever-increasing efforts to prosecute unfair labor practices in the workplace.

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