A Bad McSettlement

Published January 29th, 2018 -  - 01.29.1816


Michael M. Oswalt is an Associate Professor at Northern Illinois University College of Law. He previously worked for the Service Employees International Union, a supporter of Fight for $15.

The NLRB’s General Counsel recently sought a 60-day stay to try to settle unfair labor practice charges filed by the Fight for $15 campaign against McDonald’s and various franchisees as joint employers equally responsible for illegal retaliation. While Board proceedings resolve before judgments all the time, this is the wrong case for a settlement.

From the outside, the shift to a Republican-dominated NLRB makes a negotiated end to the case seem like the predictable conclusion. Tying the world’s highest-profile franchisor to its franchisees was always going to be legally complex, and a complaint was never a foregone conclusion. When the Trump Board recently narrowed the underlying standard, it led not only to conservative applause but speculation that the franchisor side of the litigation had just collapsed.  Many now assume that the new, more business-friendly General Counsel is sure to cut the agency’s losses and move on.

But the litigation is fine, and the General Counsel should not move on.

For one, there are hardly any losses to cut. After nearly two years of trial testimony, dozens of interim decisions by federal courts, and various procedural maneuvers to deal with charges arising in multiple cities, the case is days away from briefing.

More importantly, letting McDonald’s off the hook at this stage would be more about policy preferences than the law. The General Counsel’s (since granted) stay application turned largely on the Board’s sudden return to the pre-Browning Ferris Industries (pre-BFI) standard reconstituted in Hy-Brand Industrial Contractors. But Hy-Brand is a red herring. The evidence is out, and it’s clearer than ever that McDonald’s is a joint employer under either standard.

Direct and Immediate Control

To see why, first consider the timeline. Easily lost in the Hy-Brand fanfare is that the McDonald’s evidence was gathered and submitted, the subpoenas were issued and judicially confirmed, and the complaint was filed all under the pre-BFI—that is, current—standard. It is true that as of December 14, 2017, McDonald’s is a joint employer only if it exercises “direct and immediate” control over its franchisees, but that was the understanding from the start.

The key question at trial is thus really how, precisely, that control operates for “essential terms” of employment. After over 150 days of testimony, it’s been revealed that in the three key areas of hiring, direction and supervision, and labor relations, there is indeed “direct and immediate” control, all the way down.

Hiring

To get hired at a McDonald’s franchise, applicants go to McDonalds.com, click on “Careers,” hit “Search Jobs,” and then enter a zip code to “Find A Job Near You.” In between, a truly enormous text box warns that “You are leaving the McDonald’s Corporation website,” but the box does not mention that you are also about to fill out the McDonald’s Corporation’s job application. Every franchisee in the case uses the McDonald’s “Crew Member Selection System,” a so-called adaptive software product custom designed for McDonald’s in support of their “Hiring to Win” strategic plan.

The Selection System tests things like personality, availability, and criminal background before sorting candidates into the three categories of Green, Yellow, and Red. The stop light allusion is intended. The franchisees receive applicant reports pre-sorted by color-coded acceptability, including a personality-based assessment about whether the person is ready for the relationally-intensive demands of the McDonald’s register—or better suited for the back. At trial, franchisees testified that applications McDonald’s tags “red” are ignored.

The result is that McDonald’s pre-screens and ranks candidates based on its own view of a good McDonald’s employee in a way that, at least for the franchisees in the case, effectively results in an edited list. If one of those franchisees is open to an unconventional employee, like someone with a strange personal schedule, unique background, or somewhat eccentric personality—but the report says “RED”—that person almost surely won’t be considered. If there are only two, three, or even a handful of applicants for an open position, the sorted pool of greens, yellows, and reds could, in theory, amount to a single viable candidate.

Now, this is not the same as a McDonald’s representative sitting in a booth shaking hands with interested cooks. Yet, that is not what Hy-Brand requires. The pre-BFI standard long asked “whether an alleged joint employer ‘meaningfully affects’” or “co-determines” things like hiring. The directness and immediacy requirements mandate a tight and non-theoretical fit based in “the actual practices of the parties,” but if corporate sorting that leads the charged franchisees to abandon applicants McDonald’s likes the least isn’t co-determination in “actual practice,” it’s unclear what is. Indeed, the basis of any joint employer relationship (as opposed to, say, a single employer relationship) is an understanding that “the business entities are in fact separate.” Id. The bar is not, and has never been, something like consensus or a simultaneous interview.

Direction and Supervision

Even those casually acquainted with the case are probably aware of the “Operations and Training Manual” telling franchises things like how high to stack freezer boxes, how many times to fold the carry-out bag, and when to smile. Though famously brand- and consistency-obsessed, McDonald’s position is that these and other instructions are just options.

Except, the franchisees who have testified treat almost none of them as options. It is easy to see why. As part of the franchise agreement, restaurants are reviewed every 18 months on compliance with the Manual. The visits lead to written scorecards, and while McDonald’s minimizes the practical impact of the scores, it also makes two important concessions. One, renewals of the franchise agreement are based on the business reviews. Two, a franchisee’s right to business growth—to purchases more restaurants—is also contingent on the scores.

While the prospect of losing your business is surely anxiety-provoking, since any individual franchise may operate on relatively small margins, losing the right to grow may actually exert more pressure to follow the Manual. So even if the Manual is genuinely nothing more than a massive compendium of best practices, there is still an incredible financial incentive to get with the program. The on-the-ground reality is that the owners who grow, do.

Labor Relations

Finally, in one of the very few pre-Fight for $15 McDonald’s organizing efforts, the Board found that a franchisee “had been acting throughout the union campaign on detailed advice from the McDonald’s Corporation’s experienced labor relations officers.”

Times haven’t changed. McDonald’s paid for security guards during the 2012 strikes. Corporate representatives walked around the stores. McDonald’s was emailed lists of strikers. As the dust settled McDonald’s went to work training hundreds of franchise representatives in strike response tactics. These included a sudden switch from posted scheduled to individual hours doled out on tiny slips of paper and the posting of a boiler-plate no-solicitation policies handed down from corporate.

This is direct and immediate control.

Conclusion

In many situations, Hy-Brand will limit joint employment liability relative to Browning-Ferris. Not at McDonald’s. Workers should not be artificially forced to make a case against half a Respondent, and the General Counsel should let the litigation play itself out.

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