Employment Law Blog

“Do You Want Liability With That?” The NLRB McDonald’s Decision that could undermine the Franchise Business Model (Part II)

Monday’s post discussed the decision of NLRB’s General Counsel to hold McDonald’s Corp. jointly responsible with its franchise owners for workers’ labor complaints. The decision, if allowed to stand, could shake up the decades-old fast-food franchise system, but it does not stop there. The joint employer doctrine can be applied not only to fast food franchises and franchise arrangements in other industries, but also to other employment arrangements, such as subcontracting or outsourcing.

This decision could also impact the pricing of goods and services, as franchisors would likely need to up costs to offset the new potential liability. Everything from taxes to Affordable Care Act requirements could be affected if the decision stands.

If you are a franchisor and are currently in what could be determined to be a joint employer relationship, consider taking steps to further separate and distinguish your role from that of your franchisee. While franchisors should always take reasonable measures to ensure that franchisees are in compliance with applicable federal and state employment laws, they should take care to not wield such force over them to give the appearance of a joint-employer relationship.

We will be following the NLRB decision and keep you updated as the issue progresses.

Luke A. Wingfield is an associate with McBrayer law. Mr. Wingfield concentrates his practice in employment law, insurance defense, litigation and administrative law. He is located in the firm’s Lexington office and can be reached at lwingfield@mcbrayerfirm.com or at (859) 231-8780, ext. 1265. 

Services may be performed by others.

This article does not constitute legal advice.

“Do You Want Liability With That?” The NLRB McDonald’s Decision that could undermine the Franchise Business Model

On July 29, the National Labor Relations Board (“NLRB”) General Counsel authorized NLRB Regional Directors to name McDonald’s Corp. as a joint employer in several complaints regarding worker rights at franchise-owned restaurants. Joint employer liability means that the non-employer (McDonald’s Corp.) can be held responsible for labor violations to the same extent as the worker’s “W-2” employer.

In the U.S., the overwhelming majority of the 14,000 McDonald's restaurants are owned and operated by franchisees (as is the case with most other fast-food chains). The franchise model is predicated on the assumption that the franchisee is an independent contractor – not an employee of the franchisor. Generally, the franchisor owns a system for operating a business and agrees to license a bundle of intellectual property to the franchisee so long as on the franchisee adheres to prescribed operating standards and pays franchise fees. Franchisees have the freedom to make personnel decisions and control their operating costs.

Many third parties and pro-union advocates have long sought to hold franchisors responsible for the acts or omissions of franchisees – arguing that franchisors maintain strict control on day-to-day operations and regulate almost all aspects of a franchisee's operations, from employee training to store design. Their argument is that the franchise model allows the corporations to control the parts of the business it cares about at its franchises, while escaping liability for labor and wage violations.

The NLRB has investigated 181 cases of unlawful labor practices at McDonald’s franchise restaurants since 2012. The NLRB has found sufficient merit in at least 43 cases. Heather Smedstad, senior vice president of human resources for McDonald’s USA, called the NLRB’s decision a “radical departure” and something that “should be a concern to businessmen and women across the country.” Indeed it is, but it is important to note that General Counsel's decision is not the same as a binding NLRB ruling and that it will be a long time before this issue is resolved, as McDonald’s Corp. will no doubt appeal any rulings.

For more about the potential effects of this decision, check back on Wednesday.

Luke A. Wingfield is an associate with McBrayer law. Mr. Wingfield concentrates his practice in employment law, insurance defense, litigation and administrative law. He is located in the firm’s Lexington office and can be reached at lwingfield@mcbrayerfirm.com or at (859) 231-8780, ext. 1265. 

Services may be performed by others.

This article does not constitute legal advice.

“STOP”: Four Tips For Document Preservation When Facing Potential Litigation

In today’s digital environment, it is crucial that employers act fast when faced with a suit (or the threat of suit) by an employee or ex-employee. When potential litigation is on the horizon, the first step should always be to contact legal counsel. The next step should protecting documentation that might be relevant to the dispute. Keep in mind this acronym to make sure you are following that right steps for documentation preservation:

Search for employees that might possess information pertaining to the dispute. This might include supervisors, managers, or people who shared a workspace with the claimant, but it might also include others not under the direct supervision of the company, such as independent contractors or consultants that worked with the claimant.

Think about all sources of information – smart phones, tablets, cloud-based servers, thumb drives, work email accounts, etc. Once the sources are identified, consider whether you have and can maintain access to them. In some cases, it may require notifying the claimant that he must turn over password information or relinquish his work-issued devices, but it is highly suggested you contact legal counsel before proceeding with this step.

Order a litigation hold on relevant information. Instruct employees to not destruct, forward or edit the relevant documentation in any way. In-house destruction procedures (such as shredding or the automatic email deletion) should be cancelled until further notice from counsel. Litigation hold instructions should be made in writing and provide explicit instructions. The instructions should identify the type of materials and date ranges that are subject to the hold. A litigation hold should also identify to whom questions or concerns about the hold can be directed.

Present all information to counsel. He or she will then determine exactly what information needs to be preserved and for how long. Do not think that you, as an employer, know what information is important. By getting rid of documentation, even without ill intent, you may be hurting your ability to present a defense to the claims.

No employer likes facing employee-related litigation, but it is important to “STOP” and take time to ensure document preservation in the wake or threat of a suit.

Services may be performed by others.

This article does not constitute legal advice.

Keeping Off-The-Clock Work On Your Radar

There are lots of things that an employer must be mindful of on an ongoing basis, but near the top of that list should be the prohibition of non-exempt employees’ off-the-clock work. This common problem can easily escape an employer’s attention, but it can have an incredibly negative and costly impact if an employee (or, employees) brings a wage and hour suit. Just ask LinkedIn. More >

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Are Your Workplace Policies Too Upbeat for the NLRB?

Many employers know that keeping an upbeat and positive workforce is crucial to any successful business; however, recent NLRB rulings penalize certain policies that encourage such an environment, including policies that encourage or promote workplace civility. More >