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On July 29, 2014, the National Labor Relations Board Office of the General Counsel tipped the franchising world on its ear when it opened the door to McDonald's Corporation being labeled a "joint employer" with its 12,000 franchise owned stores across the country.  See http://nlrb.gov  (July 29, 2014).  In its pronouncement, the General Counsel's office, who has been investigating several charges against McDonald's and its franchisees that each violated employee protest rights over wages, overtime, breaks, etc., stated that, "The Office of the General Counsel has authorized complaints on alleged violations of the National Labor Relations Act.  If the parties cannot reach settlement in these cases, complaints with issue and McDonald's USA, LLC will be named as a joint employer respondent."  Id.

 

Indeed, just this suggestion by the NLRB's general counsel has sent shudders through the entire franchisor world that has utilized the franchise model to insulate themselves from employee claims, grievances, organizing efforts, and liability by maintaining that the franchisee is the true "employer" in this setting and it is in sole control of employee's terms and conditions of employment.   This was clearly stated by Steve Caldeira, chief executive of the International Franchise Association, as reported by the Wall Street Journal on July 29, 2014, "This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors.  See http://online.wsj.com (July 29, 2014)

 

McDonald's, through various spokespersons, has vowed to fight this position if it ultimately comes to pass at all costs through the Board and federal court system, "[McDonald's] also believes that this decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the U.S."  Id.  At the risk of stating the obvious, McDonald's is right.  For franchisors, the stakes could not be higher.

 

We will continue to follow this development and update accordingly.

 

Franchise Licensing and Distribution

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