McDonald’s Fights Feds for the Soul of Its Business Model

If federal officials win the case, McDonald's could be responsible for the labor violations of its franchisees, which would change its business model.

By Published on March 10, 2016

McDonald’s is expected to defend itself against federal labor officials Thursday in a case that could upend the franchise model by redefining decades of employment law.

McDonald’s is among a handful of companies wrapped in a legal battle to redefine franchising law through case precedent. The National Labor Relations Board (NLRB) could make McDonald’s responsible for any potential labor violations incurred by the franchisee’s with which it contracts. The case could also make it easier for unions to collectively bargain on behalf of all McDonald’s workers.

“These hearings are scheduled to go on for six weeks so it’s really unknown what’s going to be revealed,” Competitive Enterprise Institute Scholar Trey Kovacs told The Daily Caller News Foundation. “It’s fairly unheard of to basically bring someone to court and say we’re not going to tell you why we’re charging you as a joint-employer. They basically said you know why you’re a joint-employer so we shouldn’t have to tell you.”

The franchise model most often involves multiple companies that contract with a large corporate brand name. Federal law dictates the brand name could be forced to take responsibility over the employees on the smaller company by declaring the two joint-employers. The NLRB argues the standard should be expanded because franchisers oftentimes have too much control over the independent companies they contract with for them to be considered their own independent operations.

“Through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand,” the NLRB has previously argued in a legal brief. “To make it a putative joint employer with its franchisees, sharing liability for violations of our Act.”

Federal officials haven’t yet defined what exactly the expanded standard entails, making it difficult for businesses to comply. The NLRB can now declare two or more companies joint-employers on a seemingly case-by-case basis. Many business models rely on contracting beyond just franchising, so the move could very well subject countless employers to a slew of legal ramifications.

“Its really unknown what exactly they are going to focus on,” Kovacs continued. “I think one of the points they’re going to make is the due process argument that they’ve never been told why they’re a joint-employer and that they haven’t been given adequate time to defend themselves. I think that’s going to be one avenue that they’re going to go to fight the NLRB hard on.”

The contract allows the smaller companies to use the brand name and sell its products but they are still individually owned and operated. A list of labor complaints were consolidated by federal officials who then put the blame on McDonald’s corporate.

“They use terms like economic realities and indirect and potential control,” Kovacs noted. “So really when they could have clarified what a joint-employer is and here is a five point test to determine it to make it very clear so employers know how they could run their businesses to know what liabilities they have over franchisees and contractors they decided against that.”

McDonald’s and Browning-Ferris Industries are the main cases that have allowed the NLRB to revisit the joint-employer standard. Feds declared Browning-Ferris a joint-employer with Leadpoint Business Services Jan. 12. The standard usually helps to resolve labor disputes, but critics of the expanded version fear it could case major problems.

“One of the things that they said made Browning-Ferris and Leadpoint joint-employers is that Browning Ferris required drug tests of Leadpoint employees,” Kovacs also noted. “So they said that was enough control over the hiring practice for them to be declared joint-employers. But … we’re not going to know what a joint-employer is until a couple of these cases come out and even then they say we’re going to determine this on a case-by case basis, they can come up with new reasons to label you as a joint-employer as they go along.”

The McDonald’s case was postponed Jan. 8 because federal officials claimed they were having technical video problems. Without the videos, officials said they could not present critical evidence. Federal officials have also requested McDonald’s handover thousands of company documents, which it has been hesitant to do.

“The reason this has been dragged out for so long is because, in the discovery process, they’ve been requesting hundreds of thousands of documents from McDonald’s to be able to get some kind of smoking gun from those emails and those documents to be able to say, here it is, this is why you’re a joint-employer,” Kovacs stated. “And so since they haven’t revealed any of that information from discovery no one knows what’s in those documents or what they might come up with.”

The NLRB has defended the potential changes by noting franchisers often times have too much control over the independent franchisees for them to be considered their own independent operations. Republican lawmakers and business leaders have tried to stop the NLRB through bills and legal challenges.


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Copyright 2016 The Daily Caller News Foundation

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