McDonald’s is not a joint employer of franchisees’ staffs, NLRB rules

The decision settles a five-year dispute that held profound implications for any restaurant franchisor.
Photograph courtesy of McDonald's

The National Labor Relations Board (NLRB) has effectively killed the notion that McDonald’s is a joint employer of its franchisees’ staff, at least for now, by saying a legal action taken against certain of the chain’s franchisees should be settled immediately instead of being prolonged under the assumption the franchisor might ultimately be found culpable. 

A panel formed from the full NLRB directed an administrative court to approve a settlement reached between 30 McDonald’s franchisees and their employees rather than pull McDonald’s Corp., the brand’s franchisor, into new negotiations. “There is no guarantee that McDonald’s would be found to be a joint employer with its Franchisees,” wrote the three directors who formed a special panel to consider the legal dispute, which has raged since 2014. 

That year, individuals working in McDonald’s restaurants filed complaints against various parties within the McDonald’s system, protesting to the NLRB that their rights to engage in union activities under federal law had been violated. The plaintiffs, whose suits were combined into one, alleged that McDonald’s Corp. was also liable because of the control it exerts over its franchisees. The NLRB in place at the time agreed with that assertion.  

The NLRB, reformed by President Trump, eventually reversed itself and declared that McDonald’s was not a joint employer of franchisees’ staff. But that move was set aside because of a conflict of interest among the NLRB members who participated in arriving at that decision. 

The move, coming almost exactly five years ago, threw the franchise community into a panic. Franchisors feared that they’d be repeatedly sued by disgruntled franchisee employees seeking deeper pockets, and indicated at the time that they may need to rethink the franchising model. Franchisees feared that franchisors would be more strident in handling local matters such as employee recruitment and wages.  

Franchisors sought to avert a crisis and clear up the confusion by seeking a legislated definition of joint employer, but a Congressional proposal failed to fly. While being whipsawed back and forth by court and Board decisions on whether franchisors and franchisees are joint employers, the franchise community and its trade association, the International Franchise Association, sought a legislative clarification. Proposals were introduced in Congress but did not pass, leaving the business in limbo.

“Finally,” Matt Haller, the IFA’s SVP of government relations and public affairs, said of today’s ruling. “After five years of litigation, five years of unnecessary legal costs, and five years of uncertainty in the franchise sector, IFA is thrilled the NLRB came to this common-sense conclusion. Franchise businesses are separate businesses; holding one business responsible for the actions of a different business that it does not and cannot control is utter nonsense. This decision can bring much-needed clarity to franchise businesses of all sizes.” 

Fight for $15, a union-backed movement aiming to organize the employees of McDonald’s restaurants into a collective bargaining unit, blasted the decision. 

“This is an illegitimate decision from the Trump Administration’s compromised NLRB. The Fight for $15 and a Union will forcefully appeal the decision.” It declared in a statement. “The settlement is not valid. McDonald’s is walking away with a get-out-of-jail-free card after illegally retaliating against low-paid workers who were fighting to be paid enough to feed their families.”

Labor advocates have sought to treat the McDonald's system as one giant employer because a single party would be easier to organize.

The NLRB noted in its ruling that the agency, which acts independently of any government branch, announced in September that it intends to draft a new standard for determining when franchisor and franchisee can be legally regarded as joint employers. The first draft of the definition consists of three questions. A final version is expected in the next few weeks.

The new guidelines “may render moot the utility of using this case as a vehicle to develop joint-employer law,” the panel wrote in its extensive, highly legalistic opinion. 

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