FRANCHISORS BEWARE: You May Be Liable for the Labor Misdeeds of your Franchisees

Yesterday, to the shock of McDonalds and all other franchising companies, the National Labor Relations Board (NLRB) dramatically revised its definition of a “joint employer” and determined that franchisors can be responsible for ensuring that the companies to whom they sell a franchise comply with all labor laws. 

At issue were 43 different unfair labor practice charges filed by low-wage employees against various McDonald’s franchise restaurants.  Contrary to prior decisions, the NLRB’s general counsel decided that McDonalds could be listed as a joint employer on each of these charges.

This decision is very likely to have ramifications for all employment disputes, as courts often rely on the joint employer analysis under the NLRA when determining the issue under other employment laws.

Labor organizers and plaintiffs lawyers argue that McDonald’s—and other large chains—can be held accountable for franchisee labor practices because they have strict control when setting terms and conditions of employment.  McDonald’s, for example, sets standards for menus, supplies, uniforms, and training materials—facts that these groups argue support a finding of “joint employer” status.

Perhaps the most likely place we will see this argument made outside the NLRB context is in wage and hour disputes.  These lawsuits have a huge dollar value, and plaintiff lawyers would love to be able to drag a deep-pocket “joint employer” (franchisor or general contractor) in when the actual employer is judgment proof and unable to pay.

The fight is not over –no court has confirmed the NLRB general counsel’s determination and it is already being challenged.  But whether or not McDonald’s prevails, two points remain clear.  First, despite the NLRB’s radical departure, no ownership model serves as a complete shield from joint employer scrutiny.  Second, the question of joint employer liability will always be a factual, case-by-case determination.  If you are a franchisor (or general contractor), you need to review your relationship and make sure you have done what you can to protect yourself from unwanted liability!