McDonald’s, the world’s largest fast-food chain, is facing a major challenge to its business model as the National Labor Relations Board (NLRB) is expected to issue a new rule that would expand the definition of “joint employer” and make it easier to hold franchisors liable for labor violations and union negotiations at their franchise locations.
What is the joint employer rule?
The joint employer rule is a legal standard that determines when a company is considered to have a joint responsibility for another business’s employees. The current rule, established in 2015, requires that a company must have “direct and immediate control” over the essential terms and conditions of employment, such as hiring, firing, wages, and benefits, to be considered a joint employer.
The NLRB, an independent federal agency that enforces labor laws and oversees union elections, proposed a revision to the rule in September 2020 that would broaden the criteria for joint employer status. Under the proposed rule, a company could be deemed a joint employer if there is “evidence of reserved and indirect control” over the employees’ essential terms and conditions of employment.
The NLRB said the proposed rule is designed to “explicitly ground the joint-employer standard in established common-law agency principles” and to provide more clarity and consistency for employers and workers.
How would the new rule affect McDonald’s and other franchisors?
The new rule would have significant implications for franchise-heavy industries like fast food and hotels, as well as sectors like logistics, construction, and big tech that rely on contractors or subcontractors and temporary staffing services.
Franchising is a business model where a company (the franchisor) grants a license to another business (the franchisee) to use its brand name, products, and services in exchange for a fee and a share of the profits. The franchisor typically provides training, marketing, and operational support to the franchisee, but leaves the day-to-day management of the business to the local owner.
McDonald’s operates more than 38,000 restaurants in over 100 countries, of which about 95% are franchises. The company says that the workers at its franchise locations are employed by the franchisees, not by McDonald’s Corp., and that it does not control their working conditions or labor relations.
However, the new rule could change that. If the NLRB adopts the proposed revision, McDonald’s could be held jointly liable for labor violations or union disputes at its franchise locations, even if it does not directly or immediately control the workers’ terms of employment. This could expose McDonald’s to more lawsuits, fines, and collective bargaining obligations, as well as damage its reputation and brand image.
McDonald’s has strongly opposed the new rule, saying it would “destroy the franchise model” that has been successful for decades. The company argues that it provides opportunities for local entrepreneurs to own and operate their own businesses, while creating jobs and serving communities. The company also says that it respects the rights of its workers and franchisees to join or form unions.
What do workers and unions say?
Workers and unions have welcomed the new rule, saying it would provide more protection and representation for workers who are often exploited or mistreated by their employers. They say that franchisors like McDonald’s have significant influence over their franchisees’ operations and policies, such as setting menu prices, food quality standards, and health and safety protocols, and should therefore be held accountable for their workers’ rights and welfare.
Workers at McDonald’s have been organizing for better pay and working conditions for years, demanding $15 an hour minimum wage, paid sick leave, health care benefits, and protection from sexual harassment and discrimination. They have also filed numerous complaints against McDonald’s and its franchisees for violating labor laws, such as interfering with union activities, retaliating against workers who speak out, and failing to provide adequate personal protective equipment during the Covid-19 pandemic.
Workers say that holding McDonald’s jointly responsible for its franchise workers would give them more leverage and bargaining power to improve their situation. They also say that it would create more consistency and fairness across the industry, as well as encourage franchisors to invest more in their workers’ training and development.
What is the status of the new rule?
The NLRB announced its proposed revision to the joint employer rule in September 2020 and invited public comments until November 2020. The agency received more than 12,000 comments from various stakeholders, including businesses, workers, unions, trade associations, lawmakers, academics, and advocacy groups.
The agency said it was expecting to issue the final version of the rule by August 2021. However, as of October 2021, the rule has not been published yet. An NLRB spokesperson did not comment on the timing of the release, but labor experts expect it to be soon.
The final rule could still face legal challenges from either side of the debate. The NLRB has been involved in several lawsuits over its joint employer rule in the past, as it has changed under different administrations. The current rule, which narrows the definition of joint employer, was issued by the NLRB under former President Donald Trump in 2020, reversing a previous rule that broadened the definition, issued by the NLRB under former President Barack Obama in 2015.
The new rule, which would expand the definition again, is supported by the Biden administration, which has pledged to strengthen workers’ rights and unions. The NLRB currently has a 3-1 Democratic majority, with one vacant seat. President Joe Biden has nominated two more members to fill the vacancies, who are awaiting Senate confirmation.
