NLRB Puts McDonalds In the Fryer for Franchisee Violations

Aug 4 2014 - Workplace Policies - Gail Cecchettini Whaley

Last week, the National Labor Relations Board (NLRB) Office of the General Counsel announced that it authorized complaints against 43 McDonald’s franchisees for violating employees’ rights during worker protests that occurred around the country demanding a “living wage.”

But this was not the big news. The headline is that the NLRB also authorized complaints against the franchisor, McDonald’s, USA, LLC, and held that McDonald’s could be held jointly liable for actions by its franchise operators.

This is a departure that could impact the normal franchisor/franchisee business model. Usually, the franchisor licenses its trademark and sets some standards relating to products and quality but the franchisee is solely responsible for all employment decisions – hiring, firing, supervising, discipline etc.

Franchisors are typically not liable as joint employers unless they exert substantial control over the franchisee’s day-to-day operations.

Several business groups, including the U.S. Chamber of Commerce, the National Restaurant Association and the National Retail Federation issued statements criticizing the NLRB’s announcement.

“This Memorandum has broad implications and appears to undermine settled law defining who is the employer under the National Labor Relations Act,” said Randy Johnson, the U.S. Chamber’s senior vice president for Labor, Immigration and Employee Benefits. “This upends existing law and is part of a larger agenda at the NLRB to overturn the joint-employer standard.”

The New York Times reports that McDonald’s plans to contest the NLRB’s decision, warning that the decision could impact all types of franchisor/franchisee businesses, such as dry cleaners and car dealerships.

In California, an important case relating to franchisor liability for franchisee conduct is pending before the California Supreme Court (Patterson v. Domino’s Pizza). The case involves whether the franchisor, Domino’s Pizza, is vicariously liable for certain conduct, sexual harassment and assault, by an assistant manager at a franchisee.

Oral argument was heard by the court on June 4, 2014, and the case was submitted. HRWatchdog will provide an update once the court issues an opinion.

Gail Cecchettini Whaley, CalChamber Employment Law Counsel/Content

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