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NLRB Counsel Files Unfair Labor Practice Charges Against McDonald's Based on Joint Employment of Franchisees' Employees

    Client Alerts
  • January 02, 2015
Last month, the National Labor Relations Board’s general counsel gave notice of its intent to jointly pursue unfair labor practice charges against McDonald’s USA and its various franchisees. Like most franchisor/franchisee models, McDonald’s USA does not employ its franchisee’s employees, but sets certain standards for employee training and performance through the franchise agreement. In past years, the NLRB considered the franchisee to be the sole employer of these workers.

The general counsel’s notice signifies a new series of battles between the NLRB and franchisors over their legal obligations to guarantee franchisees’ compliance with federal labor laws. The NLRB counsel justified its actions based on its view that the control exercised by McDonald’s USA over the terms and conditions of the franchisees’ employees constitutes joint employment as defined under the NLRA and common law.

If ultimately upheld in court, this position could cause major changes in the relationship between franchisors and their franchisees. While the franchise agreements typically require the franchisee to indemnify the franchisor for claims brought against it relating to employment matters, a legal finding of joint employment could call the validity of such indemnification agreements into question. Franchisors may react to such legal developments by restricting the assistance provided to franchisees regarding employee performance in order to avoid a finding of joint employment. Franchisors could also begin to deny franchises in areas of the U.S. viewed as overly litigious or employee-friendly.

The NLRB counsel’s announcement is only the first step in a long legal process to determine the extent of franchisor liability for labor law violations. Interest groups representing business and franchisors have promised to vigorously contest the general counsel’s position, and federal courts or Congress will likely have the final word on the results of these efforts.