McDonald’s labor ruling may be employer ‘train wreck’

In a landmark challenge to traditional labor law, the National Labor Relations Board is attempting to lump together McDonald’s and its independent franchises as joint employer, which leaves many questions on what this could mean for other collective benefit plan structures.

NLRB General Counsel Richard F. Griffin, Jr. said his office has “found merit” in some of the charges against the world’s largest fast food company and will name McDonald’s as a joint employer respondent. But as Oak Brook, Illinois-based McDonald’s plans to figure out where the company will end up, labor lawyers that represent large and small employers with similar employment and labor disputes offer a roadmap of likely scenarios.

“We don’t know [where this is going], but more generally we do know it’s heading for an employer train wreck, and none of this is good,” explains Michael J. Lotito, co-chair of Littler Mendelson’s Workplace Policy Institute. He adds that the decision could leave certain franchises vulnerable down to the line to the Equal Employment Opportunity Commission’s enforcement as a large employer rather than smaller franchise business.

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Since November 2012, the NLRB, an independent federal agency that seeks to safeguard employee rights to organize and has a hand in other labor disputes, said it has had 181 cases involving McDonald’s. While 68 were found to have no merit, about 64 cases are pending investigation and 43 have been found to have value – where McDonald’s franchises and McDonald’s itself will be named as respondents, if settlements are not reached.

In a statement provided by the company, McDonald’s says it safeguards the interests of its more than 3,000 independent franchisees by “by protecting and promoting the McDonald’s brand and by providing access to resources related to food quality, customer service, and restaurant management.”

“This relationship does not establish a joint employer relationship under the law,” the food company said. Meanwhile, McDonald’s notes that it will “contest this allegation in the appropriate forum,” but adds that the NLRB decision also “changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model.”

At Ballard Spahr, Steven W. Suflas, managing partner of the firm’s New Jersey office, explains that this could be “first wave” of an NLRB onslaught on established joint employer labor law.

“This is really significant and it has really little to do with McDonald’s, and deals with much more broader issues,” Suflas explains. From a benefits standpoint, he said there are legal ramifications also playing out, as the NLRB drafts its game plan.

“To the extent that you have franchisees that are participating in the benefit plan that is provided by the franchisor, that’s one of the factors that the NLRB is trying to hang their hat on to bring the franchisor into the direct employment relationship,” Suflas says. “Benefits is one piece of the larger rubric.”

Robert A. Fisher, a partner at Foley Hoag that represents employers in all aspects of labor and employment law, says that is unclear what this potential move could mean for benefits. But Fisher explains that the uncertainty surrounding health care and retirement offerings will likely all come down to what has been agreed upon in ink.

“The first place you are going to start is obviously, ‘what does the benefit plan say?’ Most benefit plans – if they’re drafted appropriately – will define an employer in such a way that it’s not going to reach the franchisor,” Fisher states. 

Moreover, the Affordable Care Act, and the differentiation of having part-time and full-time workers, has been a challenge that has increasingly troubled the service and food industry. For small businesses, the Small Business Health Options Program has been deemed suitable for many small mom-and-pop employers who need health plan coverage. However, Lotito explains that there are more unknowns here too as it applies to health care law and other labor interests.

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“For purposes of ACA, do you have a commingled situation?” Lolito asks. “I guess the magic threshold is 50 employees, and the question, is do you commingle all of these employees? I think that from an employee benefits standpoint, if the union wins an election against a franchisee union and says, ‘well you guys are just one employer, why don’t you discontinue your health care plan – which includes the franchisor and why don’t you begin making contributions to the union’s health and welfare program?’”

But according to Lotito, he says the NLRB is singling out specific employer groups for a reason.

“They’re picking on an industry, and industry that is composed of small employers,” he explains. “The small employers, they don’t have the resources to go fight the federal government.”

But while all likely scenarios point to NLRB’s new McDonald’s focus to stretch out for numerous years until actual answers are offered by the NLRB and the federal appeals courts, the labor board may soon offer some concrete points regarding a joint employer case involving waste management company Browning-Ferris Industries of California Inc. In Browing-Ferris, union attorneys are challenging whether BFI and staffing agency Leadpoint Business Services can be considered a joint employer.

Suflas says there could be a judgment in this challenge to the franchise model in “next couple of months,” which can be used later to govern the McDonald’s cases.