Guest Post: McDonald's, Franchises, and the NLRB

Published August 6th, 2014 -  - 08.06.142

Catherine Fisk is the Chancellor’s Professor of Law at University of California, Irvine. This post is part of series: Professor Fisk’s initial post is here; Professor David Sherwyn’s response is here.

The debate over the decision of the NLRB General Counsel to issue a complaint against the McDonald’s corporation as well as some franchisees is hampered by the fact that this is a preliminary decision based on evidence that has not been disclosed to the public. Professor Sherwyn and I, along with every other commentator, are compelled to speculate about what the evidence might show. He faults my surmise about the evidence, and I note below a few possible problems with his, and like Professor Sherwyn, I do not claim detailed knowledge about how McDonald’s operates. Both of us agree that the goal is to improve the working lives of employees.

First, he suggests that it is wrong to think that McDonald’s has any real control over working conditions because it flies “in the face of [his] experience and seems somewhat dubious,” in light of McDonald’s Inc. having “top counsel” to advise it about how to manage its business without facing liability for violations of labor and employment law. The issue that these cases will eventually decide with whether the control that McDonald’s corporation does exercise—such as staffing levels or staying open on Christmas, which is what it recently required franchisees to do—is sufficient under the law.

Second, Professor Sherwyn says it is wrong to believe that McDonald’s can readily terminate a franchisee. That, obviously, is a question of fact that will be litigated in the case. Anecdotal evidence suggests it can be done very quickly if McDonald’s deems it necessary.  A Hershey, Pennsylvania, franchisee who was exploiting foreign workers on HB1 visas was effectively terminated in a few weeks after the first reports surfaced. While McDonald’s claims that franchisee “agreed to leave,” the franchise agreement that has been made public contains language giving McDonald’s the right to terminate for any breach of its regulations.  Franchisees might fear that if unionization occurs they will be terminated, which may be the most important organizing consequence if the Board eventually adopts the GC’s position.

Third, it is important to remember that the GC has not proclaimed that he has analyzed the Platonic form of the America franchise system and determined that the parties are joint employers, as if by definition. That is simply not true.  The workers filed unfair labor practice charges naming the franchisee and the franchisor and provided evidence that, when it comes to labor relations and terms of employment, what the corporate documents and agreements say about McDonald’s Inc’s role is contradicted by facts on the ground (or in some cases, contributes to facts on the ground). Typically, in unfair labor practice cases, the charging party or provides or the regional office obtains affidavits and in-person witness statements.  Without that evidence, the GC would not have come to the conclusion he did because the McDonald’s corporate documents obviously tell a wildly different story, as they do in every franchising situation. In the case of McDonald’s franchisees operating in New York, the GC was apparently persuaded that McDonald’s corporation is heavily involved in employment matters specifically. If every fast food establishment is just like McDonald’s then maybe the whole fast food franchising system really is in for a change, but for now that can’t be concluded based on what the GC did.

Finally, I did not mean to suggest that McDonald’s won’t let its kind-hearted franchisees improve working conditions.  What I was saying is that franchisee profit margins are often slim, which is why workers believe that having the franchisor on board makes a large wage increase more viable.  Lots of people say this, including franchisees.

The most important point, however, is one on which Professor Sherwyn and I agree: There is a problem, it can be fixed, and the fix requires the involvement of the corporate franchisor. He suggests that franchisors set wage and employment standards, and structure their relationships so that franchisees must meet them. This is an excellent idea. The law governing the franchise relationship should create incentives and requirements to pay a living wage and benefits, allow workers a meaningful voice at work, and create manageable work schedules, and they should make these statutory and contractual rights enforceable.

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