NLRB Decision Shakes Up Liability for Franchise Restaurants

“McJobs” may soon come with a side of leverage for workers who find themselves the victims of labor law violations. In a surprising move, the general counsel for the National Labor Relations Board (NLRB) last month permitted regional directors to name McDonald’s Corp. as a joint employer along with its franchisees in several pending actions. This marks a major shift to the traditional liability issues in the franchise world, where franchisees are essentially independent contractors who pay royalties to use the systems and products of the parent company, but are solely liable for any labor law violations against their W-2 employees. While this move doesn’t carry the binding power of a ruling, the potential changes it brings caught plenty of attention from the franchise world.

Under this new model, the parent company could share in the responsibility for unlawful labor practices by their franchisees. Lawyers on the corporate sides argue that such responsibility for oversight of what could be tens of thousands of franchisees would be impractical if not impossible. Workers’ and labor groups, on the other hand, point out that the parent companies already exercise a great deal of influence and control in micromanaging almost every other aspect of the businesses, from stock to procedures to store design to intellectual property and advertising. Such strict control of day-to-day operations, they say, voids any industry arguments that ensuring franchisees adhere to labor standards would require extraordinary efforts.

The move by the NLRB goes beyond McDonald’s, fast food, or even restaurants in general and could affect all kinds of retail stores and service providers who operate on the the franchise system. Adding a layer of responsibility to the franchisor-franchisee relationship would come at some financial cost to the corporate home offices, even as the franchise establishment market continues to grow. Naturally, there’s been a collective freak-out by industries and companies around the country. The recurring speculative concern is that a corporate parent ensuring basic labor laws are followed at their franchises will somehow have a negative effect on job creation.

This panic, however, completely ignores the more concrete issue that franchisees routinely take advantage of their workers, particularly with low-wage food service employees. Considering the amount of corporate control over bottom-line elements like which suppliers to use and what menu prices to set, franchisees often have few other ways to keep themselves profitable than by minimizing labor costs as much as possible. Unfortunately, that too often means ignoring the rights and well-being of their workers (and, sometimes, their customers). In just the past few weeks, there’s been the story of the six-year veteran Wendy’s employee who was fired for “job abandonment” while getting treatment for an ovarian cyst, a Subway franchisee who invented fictional workers to avoid paying overtime, and another Subway franchisee who forced a worker to keep serving food in between bouts of vomiting.

While it’s these kinds of egregious stories that make the news, such exploitation of America’s 3.6 million fast food workers is hardly uncommon. Minimum wage and overtime violations are all too plentiful, as are “off the clock” expectations of employees to perform tasks without getting paid. Between 2000 and 2013, 1,100 investigations of Subway franchises found about 17,000 Fair Labor Standards Act violations accounting for more than $3.8 million owed to workers, putting it ahead of McDonald’s and Dunkin’ Donuts as the industry leader in underpaying workers. When violations from other franchise-heavy industries with large numbers of low-wage employees, such as casual restaurants, convenience stores, chain retailers, and hotels, are considered, it becomes clearer that these are not merely isolated incidents.

Less clear, though, is just how much difference such corporate oversight would make. Darden Restaurants, the parent company of chain restaurants Olive Garden and Longhorn Steakhouse, among others, doesn’t franchise in the United States but instead employs more than 150,000 people at more than 1,500 restaurants owned by subsidiaries. Even while retaining corporate control over its locations, Darden is still in the midst of litigating a class action lawsuit that it routinely underpaid its restaurant staff. Keep in mind that Darden was only dealing with about 2,000 locations across all 50 states. (It recently sold off the Red Lobster chain that was part of the initial suit.) McDonald’s has around 14,000 establishments in the U.S. and Subway about 26,000. For the corporate parents, those numbers equal a lot of responsibility and, if the NLRB decision sticks, a lot of potential liability. It’s easy to see why the franchise industry is circling its wagons.

Perhaps the easiest route for corporate franchisors to avoid facing this kind of liability would have been to better police their own franchisees, but they didn’t, and they might end up paying a hefty price for failing to do so. In the meantime, if you are the victim of labor violations in Georgia or Tennessee and need an experienced Atlanta employment law attorney, contact us today at 404-873-8048. Parks, Chesin & Walbert represents plaintiffs in employment matters, including employment discrimination, wage and hour, FMLA, and more.  With offices in Atlanta and Nashville, we offer a client-centered philosophy and strive to accomplish our clients’ goals as if they are our own.

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