Business Ethos Blog

Big Mac Attack

Dr. David Mielke, Retired Dean, College of Business at Eastern Michigan University


Dr. David MielkeThe National Labor Relations Board’s general counsel just ruled that McDonalds Corp, could be treated, in labor complaints, as a joint employer of its franchisees’ workers.  You may remember that the general counsel is a recent appointment to the Board by President Obama.  Is this a threat to not only McDonalds, but also to all franchises?  Does a franchiser control the employee relations of it franchisees?  Should the NLRB move to rule on this issue?  What is the “Right Thing to do?”  Let’s look at some issues:

1. The NLRB’s 3 decades old joint employer standards requires that employers meaningfully affects “Matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction” to be considered joint employers.  In other words, the general counsel is alleging that the parent company McDonalds is involved with the hiring, firing, discipline, supervision and direction of its franchisees’ employees.

2. If a company, like McDonalds, is considered a joint employer, they are drawn into any unfair labor complaint filed by an employee against a franchise owner.  The ruling is putting McDonalds Corporation on the hook for actions taken by its 3,000 or so franchisees which operate about 90% of restaurants without their knowledge or consent.

3. This seems to overlook the facts that franchisees independently make all personnel decisions including hiring, firing, wages, benefits, hours and other work conditions.  Does McDonalds headquarters tell each franchisee who mops the floors or how many hours workers will work each week and on which shift?

4. According to the franchise agreements, McDonalds is merely paid a royalty for trademark rights and marketing—not to run human resources.

5. The basic franchise model has succeeded because it allows franchisee entrepreneurs to control costs, such as labor, and reap the benefits of running their businesses profitably.

6. The General Counsel’s ruling arose from workers who claim they were wrongly punished for walking off the job to join rallies coordinated by the Service Employees International Union (SEIU) for a $15 an hour so-called living wage.

7. A franchise agreement generally has a 20 year term.  Franchise agreements were negotiated under the previous joint employer standard, not the new interpretation.  The new interpretation would essentially void the current contracts.

8. Under the changes, franchisers would have to review countless job applications at restaurants across the country, while consulting on wages.  They would be required to monitor the franchisees’ workplace to be sure employees were taking required rest breaks and compensated for overtime and complying with federal and state labor laws.

9. In 2012, there were nearly 750,000 franchise establishments, employing about 8.1 million people, according to the International Franchise Association.  An IFA report in 2005 found that the total economic impact of franchising in the US was to add 21 million jobs and $660 billion in payroll.  That’s 15.3% of all private jobs and 12.5% of private payrolls.  Franchising’s impact has grown in the 9 years since that report.

10. Some state that this is a move to help the SEIU to organize McDonalds and all of their franchisee workers into a union.

11. The General Counsel’s ruling upends 30 years of legal precedent.  A 1982 Court of Appeals ruling stated that to be joint employers, there must be significant control and they must share or co-determine employee related matters governing essential terms and conditions of employment.

What is the “Right Thing to do?”  Congress could intervene, but that would require a Republican takeover in November and some hardball negotiating with the White House.  That leaves the courts, which have rebuked the NLRB before, but that could take years.  In the meantime, thousands of franchisers and franchisees have been put on notice that their business model is no longer legal.  Killing a business model that has been an American success would be one of the administration’s most misguided moves.  It is not the “Right Thing to do.”