After a federal agency’s decision that McDonald’s is jointly liable for the employment actions of its franchise operators, businesses across the United States were puzzling over the decision’s potential reach. Many feared that they, too, might fall under that broad umbrella.
Industry trade groups reacted angrily to the decision by the general counsel of the agency, the National Labor Relations Board, quickly signaling their intention to ask the federal courts to overturn it. At the same time, business executives began exploring how to respond to the agency’s move — whether their companies should distance themselves more from their franchised operations to avoid being swept under the new ruling or perhaps take a more hands-on role.
Legal experts also predicted that Tuesday’s ruling would lay the foundation for an expansive decision by the labor board that would apply this broad “joint employer” standard to other industries and companies besides McDonald’s and fast-food chains. They anticipated that perhaps manufacturers, real estate management firms or cleaning companies that use temp agencies or subcontractors would also be declared joint employers.
In the labor world, union leaders hailed the move by the N.L.R.B.’s general counsel, and they immediately began strategizing, with a big demonstration planned against McDonald’s on Thursday in Chicago. Labor leaders said the counsel’s ruling against McDonald’s would strengthen their efforts to pressure the fast-food giant to stop fighting unionization and to get its franchised restaurants to pay $15 an hour — the goal of a growing movement of fast-food workers.
“It’s one of the most significant board actions in quite some time,” said Peter Kirsanow, who served on the N.L.R.B. under President George W. Bush. “If this approach is adopted and upheld, it’s going to be fairly significant. There will be a fairly serious domino effect on various industries. We’re going to look at the effect on contingent workers, temporary employees, those that are sent out by staffing agencies.”
Mr. Kirsanow expects the general counsel’s decision to be appealed to the full five-member board — which is considered generally supportive of the general counsel’s view — and then to a federal appeals court. He predicted that an appellate court would uphold the general counsel’s decision in deference to the labor board’s interpretation of the National Labor Relations Act.
But Marshall Babson, a member of the board under President Ronald Reagan, predicted the N.L.R.B.’s move would not survive on appeal. He said that from his experience representing McDonald’s franchise owners, the fast-food chain should not be considered a joint employer because it does not set employees’ hours, pay or working conditions.
The full five-person labor board is considering a case in which the Teamsters union has asked it to declare Browning-Ferris a joint employer along with the staffing agency it uses to supply workers at a recycling plant in California. The Teamsters argue that Browning- Ferris closely directs the use of the staffing agency’s workers. In that case, the labor board has invited business and labor groups to file briefs over how the N.L.R.B. should define joint employer.
Mr. Babson said the general counsel’s move and perhaps the Browning-Ferris case would spawn lawsuits. “If the N.L.R.B. starts embarking on inventive and new ways to define employer, then there’s going to be the potential for an extraordinary amount of litigation,” he said.
Craig Becker, the A.F.L.-C.I.O.’s general counsel and a former labor board member under President Obama, said companies would start paying more attention to the behavior of their franchised operations in response to the N.L.R.B. general counsel’s decision. “The upstream companies — whether McDonald’s or the brand in the garment industry — may have to begin thinking not only of how big the hamburger or what the ‘golden arches’ look like, but how the workers are being treated and whether their rights are respected.”
He said the joint employer decision would make companies like McDonald’s more vulnerable to unionization efforts, once perceptions take hold that the chain has more responsibility as a joint employer of its approximately 13,000 franchised restaurants in the United States. “McDonald’s has a working-class clientele and it has to be concerned of how it’s perceived on how it treats its workers,” he said.
Steve Caldeira, president of the International Franchise Association, said the N.L.R.B. decision, if upheld, would cause franchising companies like McDonald’s to take a more forceful role in their franchised operations to minimize their liabilities. If McDonald’s is considered a joint employer, it can be held jointly liable if one of its franchisees violates the law by, for instance, not paying minimum wage or overtime or illegally firing workers for pro-union activities.
But some business experts said some companies, eager to demonstrate that they are not joint employers, might take a more hands-off approach to their franchisees — perhaps by not giving as many directives — to minimize the likelihood of being deemed a joint employer.
Mr. Caldeira said that the board’s move was “blatant political overreach” and said it would have repercussions far beyond the fast-food industry.
“This could potentially affect a wide swath of our industry,” he said. “We have hotels, health care, automotive services, residential and commercial services. This is going to be a big concern.”
He said the N.L.R.B.’s decision would “rip apart a proven and time-tested business model.”
But Catherine Fisk, a labor law professor at the University of California, Irvine, said that business’s objections were “overblown.” “What will happen in the real world is if labor costs for franchisees go up, then the price of a Big Mac will go up,” she said. “It’s not that they will be driven out of business.”
Professor Fisk said McDonald’s imposed so many rigid and costly rules on its restaurants — on hours, on cleanliness, on food — that it “constrains franchisees’ ability to improve wages and working conditions.”
“If the franchisees’ can’t effectively increase wages or fix abusive, part-time scheduling practices because of McDonald’s rules, then McDonald’s really is the joint employer,” she said.
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