In a ruling that could set a precedent for many franchise brands in restaurants and other service industries, the general counsel of the National Labor Relations Board said Tuesday that McDonald’s Corp. could be considered a “joint employer” along with its more than 2,000 franchisees in the United States.

The recommendation published by The NLRB’s Division of Advice means that the franchisor could be held liable for any wrongdoing or laws broken by an owner-operator. Franchisees own and operate more than 90 percent of the brand’s more than 14,000 locations in the United States.

According to a report in the Associated Press, Oak Brook, Ill.-based McDonald’s plans to contest the decision. The company had already been the focus of a debate over such “vicarious liability” when employees sued several franchisees as well as McDonald’s Corp. and McDonald’s USA in March, alleging that the officials “systematically stole wages” by not paying overtime or having crew members work off the clock.

At press time, McDonald’s Corp. did not respond to Nation’s Restaurant News’ request for comment. Around the industry, however, the NLRB’s ruling was criticized harshly as a threat to the rules and precedents that have governed the practice of franchising in the United States for decades.

The National Restaurant Association said in a statement that the advice memo misunderstands the franchisor-franchisee relationship and warned that the precedent the recommendation sets could have a chilling effect on restaurant growth via franchising.

“The NLRB’s attempts to overhaul the law will have dire consequences to franchisees, franchise employees and the economy as a whole,” the NRA’s vice president of labor and workforce policy, Angelo Amador, said in a statement. “By making franchisors liable for their franchisees’ employment practices and redefining individually owned franchises as ‘big business,’ the NLRB would disrupt the franchisor-franchisee relationship and impede entrepreneurship and restaurants’ ability to continue to create jobs, particularly in an increasingly challenging economic environment.”

Steve Caldeira, president and chief executive of the International Franchise Association echoed that sentiment in a statement released today, noting that “franchisees and their employees do not work for franchisors.” He added that franchise job growth, which had outpaced job growth occurring outside of franchising, would “undoubtedly come to a screeching halt if this decision is affirmed by the NLRB’s New York Regional Office.”

Rob Green, executive director of the National Council of Chain Restaurants, agreed, saying in a statement that the recommendation was “wrong-headed and will have a negative impact on the growth of small businesses in America.”

On the other hand, leaders at Fast Food Forward, which has organized strikes of quick-service workers since late 2012, praised the ruling as an affirmation that McDonald’s and other large franchisors exert pressure on their owner-operators to act in ways that do not uphold their workers’ best interests.

“As the federal government’s determination shows, McDonald’s clearly uses its vast powers to control franchisees in just about every way possible,” Kendall Fells, organizing director for Fast Food Forward, said in a statement. “It’s time the company put those same powers to work to do something about the fact that its workers are living in poverty.”

Micah Wissinger, an attorney with Levy Ratner P.C. who sued McDonald’s on behalf of employees in New York, added in a statement: “McDonald’s can try to hide behind its franchisees, but today’s determination by the NLRB shows there’s no two ways about it: The Golden Arches is an employer, plain and simple. The reality is that McDonald’s requires franchisees to adhere to such regimented rules and regulations that there’s no doubt who’s really in charge.”

Worldwide, McDonald’s has more than 35,000 restaurants in more than 100 countries, and more than 80 percent of those locations are franchised.

Contact Mark Brandau at mark.brandau@penton.com
Follow him on Twitter: @Mark_from_NRN