The National Labor Relations Board (“NLRB”) announced last week that their General Counsel found merit in charges made by McDonalds’ employees regarding employee protests. The momentous impact of the announcement is that the finding was against both the McDonald’s franchisee and McDonald’s USA, LLC, franchisor, as co-employers.
McDonald’s intends to fight the decision, with the concurrence of the International Franchise Association, emphatically taking the position that franchises are small, independently run businesses and not run by the franchisor. Franchisees typically create their own legal entities, pay taxes, hire and fire their own employees, create their schedules, manage their payroll, pay their own bills and other such business activities. This is the first time the agency is “piercing the corporate veil” to find potential for liability in the franchisor for actions impacting employees.
The General Counsel apparently agreed with the employees’ position that, with the technological advances, the franchisor can monitor and control the franchisees’ operations to such an extent that it goes beyond protecting its brand to being jointly responsible for alleged labor law violations. This decision departs from the long-established legal standard that typically shields franchisors from liability for franchisee action.
One advantage to the franchise business model has been to insulate the franchisees as employers from labor and employment laws affecting employers with a minimum number of employees. For example, the Family and Medical Leave Act applies only to employers with at least 50 employees within a 75 mile radius. Many one-location franchisees do not reach the coverage threshold. Yet, if the franchisees are considered co-employers with the franchisor, the minimums may be reached.
The NLRB decision, if upheld, could have a widespread impact on franchises in a variety of industries beyond restaurants. Real estate franchises, including Re/Max, Century 21, ERA and Keller Williams may have to re-evaluate the manner and extent to which they monitor and control their franchisees.
The NLRB has been quite liberal in recent years, extending their own authority beyond the realm of labor unions. Decisions have involved employees’ rights to gather and discuss working conditions – with or without a union – including decisions on the use of social media and prohibiting employee discipline for certain anti-employer Facebook posts.