McDonald's goes to battle over 'joint employer' rules—with its franchisees

Two different groups of franchisees issued warring statements on their views of joint employer regulations as the dispute intensifies between the burger franchise and an independent group of owners.
McDonald's franchisee dispute
Two groups of McDonald's franchisees issued warring statements over the impact of joint employer. / Photo by Jonathan Maze.

McDonald’s once again was accused of being a heavy-handed “joint employer” of its franchisees’ employees. But this time the accusations are coming not from labor groups, but a group of the company’s own operators.

The Chicago-based burger giant’s ongoing dispute with its franchisees intensified this week over the level of control the company exerts on its operators’ businesses, this time with franchisees suggesting that some of its actions could qualify the company as a joint employer under potentially tightened regulations of the franchisee-franchisor relationship.

The result led to an intense week that featured warring statements between multiple groups of operators along with accusations of intimidation and threats and fears that the franchisee base has become divided.

In a message to its membership on Wednesday, and shared with Restaurant Business, the National Owners Association (NOA) said that 94% of its members backed a statement largely laying the blame for potential joint employer regulations on the company itself. “If McDonald’s does not want to be considered a joint employer, then they need to stop acting like one,” the message said.

“Despite repeated intimidation tactics and retaliatory threats undertaken by McDonald’s Corporation against its franchisees, NOA membership has spoken with overwhelming support,” the statement read.

Meanwhile, the leaders of 10 different internally created franchisee groups, known as franchisee advisory councils (FAC), issued a joint statement labeling the NOA a “small but vocal group” and taking the opposite point, that joint employer would be bad for business.

“We’re disappointed that a small but vocal group is pushing this counterproductive agenda, which threatens our business model and the livelihoods of future generations of franchisees,” the group said. Three of the signatories in interviews on Thursday argued that they disagree with proposed changes in joint employer rules by the National Labor Relations Board.

“We adamantly do not want or do not support any joint employer legislation,” Erica Shadoin, chair of the FAC for the Columbus, Ohio region.

McDonald’s itself has not provided a comment. The topic was expected to come to a vote before the company’s internally created National Franchise Leadership Alliance (NFLA) on Thursday.

McDonald’s dispute with its franchisees flared anew last year amid changes in ownership requirements, operations standards and more frequent inspections of operators’ restaurants. NOA, an independent group of more than 1,000 McDonald’s franchisees, have since then hired high-powered franchisee attorney Robert Zarco to represent them.

Operators have since then started taking their case to regulators. They’ve started sending letters to the U.S. Federal Trade Commission as it starts examining more intense franchise regulations. They’ve started backing state regulations of franchising, including a recently passed set of regulations in Arkansas. Other states are expected to take up similar legislation.

And they’ve started arguing that McDonald’s itself is responsible for whether it gets labeled a joint employer. The NLRB has been considering tightening its definition of “joint employer” that could make franchisors more responsible for their franchisees’ employees.

Zarco has argued that such rules could be good for franchisees by reducing the amount of control franchisors exert over their franchisees. He argues that the decisions would be made on a case-by-case basis, based on the amount of control the franchisor exerts over its franchisees’ actions.

“The potential threat of a franchisor being deemed to be a joint employer may be sufficient to cause the franchisor to roll back the continued imposition of excessive controls over its independent contractor franchisees,” Zarco said in a statement. He has also argued that if joint employer was such a threat to the business that McDonald’s should disclose that threat as a risk factor in federal securities filings, something it has not done.

McDonald’s disagrees and pushed back hard against Zarco’s initial projection. The company believes it would have little choice but to exert more control of operators’ businesses if it would be suddenly the subject of labor-related lawsuits, which is what the rules would open. “It makes no sense,” Norm Leon, head of franchise litigation for the law firm DLA Piper, said in an interview last month, following our publication of Zarco’s views on the topic. “It would do the exact opposite.”

Operators’ push on regulations could have a sizable influence on efforts to regulate franchises throughout the country, given McDonald’s size and influence on the business model.

The association has been pushing back against the company’s requirements. Its operators have indicated the inspections are too numerous and have generated fear that they could prevent franchisees from being able to expand or renew their restaurants once their agreement runs out.

“As long as McDonald’s present conduct or reserved future conduct does not fit with the joint employer criteria, as set by the NLRB, and does not directly or indirectly impose or reserve the right to impose controls over the franchisees and their restaurant employees on work and other labor-related issues (which are contrary to the franchisee’s status as a true independent contractor), under those conditions, the NOA believes that McDonald’s should not be considered a joint employer,” the NOA’s statement read.

The topic appeared to hit a nerve within the system. McDonald’s canceled its government relations meeting scheduled for next week in Washington D.C., in which it hoped to present a unified front on various regulatory issues with members of Congress.

The issue also appeared to have created a division within the franchise base itself. Several franchisees described what they saw as a campaign to pressure operator leadership to go along with the corporate view on joint employer. The operators say the conversations over the topic sometimes devolved into “unprofessional” conduct. Some franchisees say corporate leadership broached the idea of circumventing the NFLA altogether, removing corporate support and instead going through the regional councils instead.

McDonald’s approval can mean the difference between a franchisee being able to expand or not and, based on some of the changes announced last year, could influence whether they are allowed to keep their stores once their franchise agreement comes up for renewal.

“In my opinion, based on what I have seen, they are intimidating members of the NFLA through direct or indirect retaliatory threats that they must support McDonald’s efforts on joint employer,” Zarco said in an interview.

But three council chairs interviewed Thursday all insisted they were not pressured to make the statement they did and denied any effort by the company to circumvent the alliance. “No one was slightly hesitant to that position,” Lisa Essig, a McDonald’s franchisee out of Kansas City and chair of the FAC for the Denver field office.

The issue comes after McDonald’s restructured its corporate offices, including an extensive change to its field office structure, closing physical offices and moving to a single, nationwide oversight of those offices instead of two separate zones.

The dispute over joint employer and the differing statement highlights potential divisions within the franchisee base that appear to have intensified recently. Franchisees are “fractured” right now, one operator said.

Another franchisee, not with either group, said simply, “this all could have been avoided if the company simply listened to us on inspections.”

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