Is McDonald's Responsible for Its Franchise Workers?

An administrative law judge in New York City this week heard the first arguments in a case that has potential to reshape how workers fight for higher wages with giant franchisors like McDonald’s.

Specifically, the case deals with workers from five states (California, New York, Pennsylvania, Illinois, Indiana), at 29 locations, who say McDonald’s fired or threatened them after they joined a national day of fast-food employee protests asking for better pay in November 2012.

At issue is the nature of the relationship McDonald’s has with workers employed by its vast network of franchises. The National Labor Relations Board (NLRB), a government agency whose job it is to investigate and remedy labor disputes, argued on Thursday that McDonald’s is ultimately responsible for the workers because of the extent to which it controls an individual franchise’s operations, down to when bathrooms should be cleaned and where food should be placed on the counters.

McDonald’s and its franchises disagree, calling the NLRB’s interpretation of the relationship “radical and unprecedented.” A ruling by administrative law Judge Lauren Esposito would decide whether McDonald’s is liable for violations of labor law at its franchises nationwide. A win for the workers would set a precedent for the fast-food industry, and possibly the franchise industry in general, because it would make corporate headquarters liable for the employees who work under their banners.

That hasn’t happened before. Until recently, it was the franchise owners who were responsible––and thus liable––for the employees behind the fry cookers. But slowly this has changed.

The U.S. has more than 14,000 McDonald’s locations, and it says 70 percent of its American employees are either women, or people of color. In fact, McDonald’s is often praised for its diverse workforce. The fast-food industry, as a whole, employs a disproportionate amount of black or Latino workers when compared to their share of the U.S. population. And the median pay for bottom-level fast-food jobs was $8.69 an hour, according to a University of California, Berkeley, study. This is why the fight for a $15 minimum has often been cast as not only a struggle to help the working poor, but to help the disproportionate amount of people of color who work in fast-food.

After the November 2012 national protests (The New York Times called it “the biggest wave of job actions in the history of America’s fast-food industry”) some McDonald’s workers who participated or tried to organize unions said they were later fired, warned against organizing, or even scolded for participating in rallies. The Service Employees International Union filed complaints on behalf of the workers with the NLRB. But instead of filing complaints against each franchise, as has been customary since the Reagan era, the NLRB’s lawyers named the McDonald’s Corporation as the responsible party, calling it a “joint employer.”

That phrasing is important. In July 2014, the NLRB’s general counsel said McDonald’s headquarters qualified as a joint employer because of how much it controls the way a franchise works. Then in 2015, another NLRB ruling broadened that interpretation further.

This was a reversal of the board’s Reagan-era interpretation of the standard in which a parent company had to show “direct and immediate” control over the employees of a franchise in order to be considered a joint operator. That created an insulating wall between the franchise owner and corporate headquarters. If workers unionized, they’d have to negotiate not with corporate, but with the many disparate franchises. But a change in that standard means proving McDonalds––or any corporation––has enough control over its franchises to be considered a joint employer became a lot easier.

Jamie Rucker, the lead lawyer for the NLRB in the McDonald’s case, said Thursday in court that top corporate staff tell franchises how to train employees, lay out employees’ job descriptions, and recommend how long they should spend on each task.

“The level of control this gives McDonald’s over its franchisees is very fine-grained and specific,” Rucker said.

Corporations like McDonald’s, as well as the franchises, are upset with this new logic.

“Millions of jobs and the livelihoods of hundreds of thousands of independent franchise small businesses are now at risk due to the radical and unprecedented nature of this decision,” Steve Caldeira, the president and CEO of the International Franchise Association, said in a statement after the 2014 ruling. “Ruling that franchises are joint-employers will be a devastating blow to franchise businesses and the franchise model.”

Advocates of the new interpretation saw it as a chance to hold accountable––and to bargain with––corporations that had pulled the levers from behind a curtain, but were impervious to suit or negotiation.

“McDonald’s can no longer get away with reaping all the benefits and the profits while saddling their franchises with all the risks and the costs,” Micah Wissinger, the lawyer who brought the 2014 case to the NLRB, told The Washington Post at that time.

A win in this case would mean that cashiers and cooks could potentially address their grievances all the way up to the top. It would also mean fast-food workers in unions could have precedent to negotiate directly with headquarters.

But a ruling will probably not be made for years, Gary Burtless, a labor market policy researcher at the Brookings Institution, wrote me. In many cases, he said, a wealthy corporation can pay lawyers to help delay a decision. Meanwhile, workers would get no financial recompense while they await a decision.

The consequences of such a delay could be enormous: A change of political party in the White House may mean a change in the NLRB. And if the NLRB changes sufficiently that it comes around to McDonald’s point of view, workers will have little recourse left.