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In an announcement on July 29, 2014, the National Labor Relations Board’s (NLRB) Office of the General Counsel (OGC) authorized complaints against McDonald’s franchisees and determined that the corporate franchisor, McDonald’s, USA, LLC is considered a “joint employer.” The announcement said that the NLRB’s OGC had investigated charges alleging McDonald’s franchisees and their franchisor “violated the rights of employees as a result of activities surrounding employee protests” under the National Labor Relations Act. In the 181 cases involving McDonald’s filed with the NLRB since November 2012, 68 were found to have no merit, 64 cases are currently pending investigation, and 43 cases have been found to have merit. In the 43 cases where complaints have been authorized, if the parties are unable to reach a settlement, then McDonald’s franchisees and/or McDonald’s, USA, LLC could be held jointly liable for labor and wage violations by the franchise operators.

This decision has been lauded by pro-union groups and created some concerns by employers suggesting that if the decision is allowed to stand it would disrupt employer practices in franchise operations and support unionizing activities as well as add costs to franchise operations, especially in the fast-food business. Some legal experts believe that this decision is overreaching and may show the NLRB’s desire to hold other companies to the same standard of “joint employer,” impacting other businesses using temporary labor or contractors and increasing liability in cases involving employment practices, wage, or union-organizing violations.

According to attorney Zan Blue of employment law firm Constangy, Brooks & Smith LLC, “For decades, the courts and administrative agencies have said that two separate companies are ‘joint employers’ only if both actually control the wages and hours of the employees, as well as other terms and conditions of their employment. Applying this rule, courts and administrative agencies consistently and properly have ruled that franchisors and franchisees are separate employers in most circumstances. The reason is simple — although franchisors set standards to protect the brand, they are almost never directly involved in employee matters at franchisee operations…. The General Counsel wants the Board to adopt a new standard, one that says a franchisor and franchisee are ‘joint employers’ if the franchisor has ‘significant control’ over employee matters at franchisee operations. No one knows what ‘significant control’ really means.”

Most experts believe that this ruling will be challenged and may not stand as the decision is appealed. We will continue to monitor this decision along with other NLRB-related actions and provide updates.