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 McDonald’s Photo: Hemant Mishra/Mint
McDonald’s Photo: Hemant Mishra/Mint

McDonald’s Free From Liability for Franchise Labor Violations

McDonald’s Corp. has won a huge victory in a multiyear legal battle over whether it should share responsibility for alleged labor violations in its franchisees’ restaurants, a case that posed a major threat to the franchise model underlying one of the largest employers in the world.

McDonald’s Corp. has won a huge victory in a multiyear legal battle over whether it should share responsibility for alleged labor violations in its franchisees’ restaurants, a case that posed a major threat to the franchise model underlying one of the largest employers in the world.

The federal labor board in a 2-1 ruling Dec. 12 ordered an agency judge to approve a roughly $170,000 settlement between McDonald’s franchisees and their workers that also absolves the fast food giant from any direct responsibility as a joint employer—the central goal of Obama administration officials who initiated the prosecution. The Republican majority board’s decision signals that the agency is unlikely to hold franchisers and companies that rely on contracted labor liable for labor law violations at their subsidiaries’ workplaces without strong evidence that the parent company directly controls the workers involved.

The settling of the case—which an agency judge said is the “largest case ever adjudicated" in the history of the National Labor Relations Board—also marks a significant setback for the labor movement. Worker advocacy groups and the Obama administration have backed the litigation against McDonald’s in hopes of a landmark ruling that could have been used to compel major franchisers and others to bargain collectively with employees and share liability for workplace law violations.

The union-allied Fight for $15 and associated groups began filing unfair labor practice charges to the NLRB against McDonald’s in 2012, in conjunction with a protest and organizing campaign for higher wages and union rights. The charges generally alleged that McDonald’s franchisees fired and retaliated against employees for supporting union activity.

The groups argued that McDonald’s shares control over the workers in its franchisees’ restaurants, and also should share liability. The company disputed that it has sufficient say over the franchisees’ and workers in their restaurants to be considered a joint employer.

The NLRB reversed course in the case after President Donald Trump’s appointees to the agency took over. NLRB General Counsel Peter Robb paused the case just days before arguments closed in front of an agency judge. Lawyers in Robb’s office then hashed out a settlement offer with McDonald’s over objections from Fight for $15.

NLRB Administrative Law Judge Lauren Esposito rejected the proposed settlement as inadequate. The 2-1 board ruling overturned Esposito’s decision and approved the settlement.

“All settlements entail compromise, and the parties made concessions to arrive at a remedy for all affected employees," the Board said in its opinion, adding that it disagreed that the terms are not reasonable.

“To preclude the resolution of Board litigation, on reasonable terms, simply because a proposed settlement does not mirror the remedy that could be achieved through successful litigation would undermine the Board’s interest in ‘encouraging voluntary dispute resolution, promoting industrial peace, conserving the resources of the Board, and serving the public interest.’"

In an emailed statement, McDonald’s Corp. said it was “pleased" that the case had been concluded, and that the decision “allows our franchisees and their employees to move forward, and resolves all matters without any admission of wrongdoing."

“I think this closes an important chapter for the franchise business model," Matthew Haller senior vice president for government relations and public affairs at the International Franchise Association told Bloomberg Law shortly after the ruling was announced.

McDonald’s is a member of the group, which advocates on behalf of the franchise sector.

“While the story’s not completely over, it provides a solid amount of clarity, certainly for McDonald’s, but also for a lot of other observers in the franchise space, including hotels, gyms, restaurant chains and other businesses," Haller said.

Democrat Suggests Bias

Lauren McFerran, the Board’s Democrat, dissented from the ruling.

The agency judge “reasonably exercised her discretion to reject settlements that fail to resolve the joint-employer status of McDonald’s, and instead serve to advance the policy view of the current General Counsel, who has attacked the Board’s current joint-employer standard at every opportunity as he litigated this case brought by his predecessor," she said.

The decision applied the wrong standard of review and “arbitrarily" reversed Esposito, McFerran wrote, adding that the ruling “will almost certainly not be the last word."

The union-backed Fight for $15 organization said it will appeal the decision.

“Despite an independent judge rejecting the bargain-basement settlement terms, the Trump administration took the side of McDonald’s Corporation over workers," the group said. “Corporate control over politics and government has infected our democracy."

Board Chairman John Ring and member William Emanuel were asked to recuse themselves from the case because they came to the NLRB from law firms that had helped McDonald’s counter Fight for $15 actions. Ring wasn’t on the 3-person panel that decided the case, so the issue was moot as to the chairman; and Emanuel considered the motion but decided to participate, according to the ruling.

The NLRB has been dogged by conflict-of-interest concerns related to members’ participation in cases with ties to their former employers or clients. The board recently released a long-awaited report following a comprehensive review of its ethics restrictions.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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