On July 29, 2014, the General Counsel of the National Labor Relations Board (“NLRB”) issued an advice memorandum authorizing the treatment of McDonald’s, USA, LLC (“McDonald’s”) as a joint employer with McDonald’s franchisees in labor complaints. The General Counsel’s determination was in response to 181 cases involving McDonald’s that have been filed with the NLRB since November 2012. The NLRB’s Office of the General Counsel found 43 of those cases to have merit, while 64 of the cases are currently pending investigation. If the parties do not reach a settlement in these cases, the NLRB’s Office of the General Counsel stated that it will issue formal complaints naming McDonald’s and the franchisees jointly. If upheld, the determination would allow employees of franchise stores to bring claims against McDonald’s, the franchisor, and attempt to hold it liable for working conditions and employment practices in franchise locations. McDonald’s plans to contest the decision of the General Counsel, and its Senior Vice President of Human Resources, Heather Smedstad, stated, “We believe there is no legal or factual basis for such a finding, and we will vigorously argue our case at the administrative trials and subsequent appeal processes . . .” Approximately 90% of the more than 14,000 McDonald’s restaurant locations in the United States are franchise stores.

The determination by the NLRB’s Office of the General Counsel that McDonald’s can be considered a joint employer has led to a surge of commentary and news articles with varying opinions on the decision. Stephen Caldeira, president and CEO of the International Franchise Association, said the decision of the General Counsel “would have a widespread, seismic impact on all segments of the franchise industry. Franchisees are independently owned. They have the responsibility to hire and fire. They process their own payrolls, pay their own taxes and have their own employer taxpayer ID. If the decision sticks, small business owners will lose control of their business and the equity they work so hard for. It’ll have a chilling effect on job creation.” Other entities such as the National Retail Federation and the National Restaurant Association also noted their opposition to the “outrageous” decision and the “dire consequences” it could have on franchising and the U.S. economy. However, other groups view the determination by the General Counsel as a victory and an indication that franchise stores are not actually independent owner-operators who determine their own work rules and employment policies. Micah Wissinger, an attorney representing several McDonald’s workers in New York City, applauded the decision of the General Counsel, stating, “McDonald’s can try to hide behind its franchisees, but today’s determination by the N.L.R.B. shows there’s no two ways about it: The Golden Arches is an employer, plain and simple.” Kendall Fells, the organizing director of Fast Food Forward, an entity that has been staging demonstrations and protests over the past two years for fast-food workers seeking higher pay and the right to unionize, commended the determination, stating, “As the federal government’s determination shows, McDonald’s clearly uses its vast powers to control franchisees in just about every way possible.”

If this decision of the General Counsel to authorize treating McDonald’s as a joint employer is upheld, the results could be significant not only for McDonald’s and other fast food restaurant chains but for all franchisors. If you have any questions about these issues, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.