The NLRB's Office of the General Counsel has issued an important statement authorizing complaints for unlawful labor practices against McDonald's, USA, LLC and their franchisees. In it, the General Counsel may have taken a new approach in how the NLRB will handle employee charges against franchisors and franchisees, by treating the franchisor and the franchisee as joint employers.
The ramifications of this approach could have a far-reaching and profound effect on franchisor-franchisee relationships because the NLRB's current standard treats franchisees as independent contractors of franchisors. In this system, a franchisor licenses a bundle of intellectual property to franchisees on the condition that the franchisee must follow certain standards in operating their own independent businesses. This means that franchise owners are independently liable to employees for their employment practices, and that franchisors are not. By naming McDonald's as a joint employer with independent contractor franchisees, however, the NLRB has acknowledged some legal basis for holding McDonald's vicariously liable for the labor violations of the independent businesses of franchise owners.
Although the rationale behind this legal basis has not yet been explained by the NLRB, it may be predicated on the amount of control that McDonalds allegedly has over the daily activities and employment practices of their franchisees. Under the current standard, only franchisors who assert direct control over employment decisions of franchise owners (hiring, firing, supervision and direction of employment) may be held liable for their franchisees' employment practices. By permitting a complaint against McDonald's as a joint employer, NLRB General Counsel is signaling that they are either satisfied that the charges have alleged enough control to meet this standard, or that they are departing from the current legal standard alltogether. In either case, this could mark a sea change in franchisor-franchisee relationships, since these relationships are established on the assumption that a franchisee is an independent contractor and a franchisor cannot be held liable for a franchisee's employment practices. These relationships are widespread, and franchisors and franchisees should be on high alert.
This statement marks only a preliminary decision, however, and it is far from the end of this story. Stay tuned as further developments unfold.