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National Labor Relations Board Attack on McDonald’s Finally Over

A major holdover case from the Obama-era National Labor Relations Board (NLRB), which acted as the litigation arm of organized labor, is finally resolved. On December 12, the NLRB approved a settlement with McDonald’s USA LLC. The settlement puts to bed a case brought by the Fight for $15 that alleged McDonald’s was a “joint employer” with a number of franchisees and was responsible for the separate business’s labor violations.

Without getting into the details of the case, brought five years ago (read here and here for more information), this is the major takeaway as the NLRB wrote in the decision:

Moreover, the Board’s recent notice of proposed rulemaking regarding the standard for determining joint-employer status, which issued after the judge’s order, may render moot the utility of using this case as a vehicle to develop joint-employer law. The proposed rule specifically addresses elements of the franchisor/franchisee relationship. As the General Counsel points out, if the Board implements a new joint-employer standard through rulemaking, it will likely supplant any standard arising from the litigation of these cases. As a result, a decision regarding joint-employer status may have limited precedential value. Because of the foregoing, we balance the benefits of settlement against the value of continued litigation differently from the judge.

This case, along with the Obama NLRB’s decision in Browning-Ferris, advanced a legal theory that sent a clear message to job creators: hire people in-house and stop working with small businesses, contractors, and franchisees. Specifically, this novel joint employer standard was overly broad and vague by expanding the criteria for when an employer may assume joint employer liability to include indirect control and unexercised potential control.

Ultimately, the result of such an overreaching joint employer standard is immense uncertainty for businesses and imposed massive costs on thousands of businesses across the country.

On the cost front, a survey conducted by the International Franchise Association found that the Browning-Ferris joint employer standard has already cost businesses between $17 and $33 billion. Fewer jobs were created, with between 194,000 and 376,000 potential jobs eliminated.

In regards to uncertainty, employers face increased risk of protracted and costly litigation. McDonald’s spent over $2 million on discovery alone on its joint employer case. This is because the NLRB failed to develop a bright-line rule and provided little guidance to employers on when business-to-business relationships establish a joint employer relationship and liability. This vagueness also forced businesses to reconsider offering assistance to companies they contract with and assistance to their workers. For example, as Mary Kennedy Thompson, chief operating officer of franchise brands at the Dwyer Group, stated in Congressional testimony:

...franchisors like Dwyer Group have been forced to back-off in providing traditional support to franchisees—all out of fear we will be considered a joint employer. Franchisors are cutting back on giving training to technicians, helping franchisees find new employees, and providing the point of sale software to franchises. These have been resources that help attract entrepreneurs to franchising and grow franchises across the country. Franchises are small businesses that have on average 7-10 employees, and they need all the help they can get with recruiting, training, and having a blueprint for operating their business successfully.

Thankfully, the current NLRB is expected to finalize a rule sometime in the near future, which restores the traditional joint employer standard. The traditional standard is a bright-line rule that requires employers to exercise direct control over the work conditions of another employer they do business with.

It is past time to restore this commonsense standard. By restoring the direct and immediate control standard, employers will avoid needless costs that stem from the vague and overly broad joint employer standard imposed by the NLRB’s Browning-Ferris decision. Further, by implementing a predictable and easily understood joint employer standard will ensure that employers will be able to provide assistance to other businesses they contract with.