McDonald's Win Highlights a Huge Problem

Business columnist Suzanne Lucas passes along some good news for McDonald's: A federal agency has ruled in its favor on a question only a union boss could come up with:

Image by Lyman Gerona, via Unsplash, license.

In 2012, a few McDonald's franchise employees claimed they were punished for pro-union activities. This is patently illegal. [It shouldn't be. --ed] The question was, is McDonald's liable or strictly the franchise owners? If McDonald's is a joint employer, then they can be held responsible for everything at the employee level--from missed overtime payments to sexual harassment.

The National Labor Relations Board just handed down a ruling declaring that McDonald's was not a joint employer and allowing the franchise model to continue.

In case the meaning of "franchise model [can] continue" isn't clear, Lucas elaborates in her closing remarks:

Chances are this joint employer ruling affects everything from how you buy a house to who you hire to clean that house. Fast food restaurants are not the only people who operate in the franchise model.

People buy franchises precisely because they want to be business owners and make those decisions. While it's nice to have a company's big pockets at stake, rather than just your own, if the franchise owner becomes liable for everything regarding employees, they are likely to seize control of everything as well. If they have control of everything, there is no point in franchising.

This ruling is not only pro-big business but pro-small business owners, allowing them independence in how they run their franchised stores. [bold added, link omitted]

We can heave a sigh of relief for the moment: The unions have failed in this attempt to destroy a very popular way of doing business.

That said, I hope I am not alone in my alarm that a small group of government bureaucrats, whose members voted along party lines, hold life-and-death power over this well-understood and longstanding business model. Can a future administration revisit this question and reach a different conclusion? I wouldn't be surprised.

In any event, it seems likely that the question will get asked again with different wording, given the legal tempest California's new anti-gig law is causing:

... The plaintiffs [in Salazar v. McDonald's, a different case] do not dispute this fact, but rather argue that Dynamex should be read broadly as a standard of joint employer status to encompass not only the franchise owner but also the national franchisor itself. They ask the court to find that McDonald's USA was an employer of its franchisees' workers under the ABC test and is accordingly jointly liable for any wage and hour violations.

AB 5 codifies the ABC test, and at present contains no implicit or explicit exception for franchising. Proponents of the law are likely to press for its broad interpretation (as advocates of the ABC test have already done in the judicial context). If courts are receptive to these arguments, franchisors will potentially face exponentially increased financial exposure, as they might now be held liable for violations of wage, hour, and other labor laws committed by their franchisees arising from practices over which the franchisor has no direct influence, oversight or control. If that happens, we can safely predict the franchising model will face near limitless liability.

So the battle is won, but the war rages on. And it will, until we start demanding that our government stop interfering with the right to contract and resume protecting it instead.

-- CAV