The Franchise Memorandum

An administrative law judge has denied motions to approve proposed “informal” settlements in the National Labor Relations Board joint employer litigation against the franchisor of the McDonald’s system. McDonald’s USA, LLC & Fast Food Workers Comm., N.L.R.B. Case Nos. 02‐ CA‐093893 (July 17, 2018). The litigation arose out of alleged retaliation against franchisees’ employees who participated in Fight for $15 demonstrations demanding higher pay for fast food workers. The litigation was commenced under the Obama Administration for the stated purpose of obtaining “a finding that McDonald’s USA, LLC was jointly and severally liable for all of the alleged unfair labor practices . . . because of its status as a Joint Employer of the affected workers.” When Republicans took control of the NLRB, new General Counsel Peter Robb sought to retreat from this objective and settle the claims against McDonald’s. After 150 days of hearing, near the close of the proceedings, McDonald’s and the General Counsel presented the proposed settlement terms to the ALJ, over the strenuous objection of the Charging Parties.

The proposed settlements would have resulted in payments to certain allegedly affected employees. They would have also established a limited‐time Settlement Fund (funded by the Franchisee Respondents) that would compensate employees for future instances of some, but not all, of the retaliatory actions alleged in the consolidated complaint. The proposal also provided a process allowing the General Counsel to reassert joint employer claims against McDonald’s in the event the settlement agreements were breached, but only if both the Franchisee Respondents and McDonald’s failed to perform their obligations under the agreements. McDonald’s obligations would be limited to mailing out a Special Notice if a Franchisee Respondent failed to remedy a violation of the agreements, and to collecting the money comprising the Settlement Fund. The proposed settlements did not include any admission regarding McDonald’s alleged joint employer status.

The ALJ recognized the NLRB’s longstanding policy of encouraging amicable settlements. Nevertheless, Judge Esposito decided that the proposed settlements failed to satisfy the so‐called Independent Stave test, finding that the proposal was not reasonable in light of the nature of the violations alleged, the risks inherent in the litigation, and the state of the litigation. Among the ALJ’s reasons were contradictory statements made by McDonald’s counsel and the NLRB General Counsel regarding McDonald’s responsibilities under the proposal. Finding that there was no meeting of the minds, the ALJ suggested that the settlement would not conclusively end the litigation, particularly in light of the parties’ contentious relationship throughout the litigation. Further, the ALJ suggested that the risks of proceeding with the litigation did not warrant the General Counsel’s acquiescence to settlement terms so favorable to McDonald’s. The proceedings were almost finished, and while the ALJ did not decide McDonald’s was a joint employer, she described “a significant quantum of evidence” suggesting that McDonald’s was more than a mere bystander. Given McDonald’s potential liability, the proposed settlements would “not in any way approximate the remedial effect of a finding of joint employer status.”

In denying the motions to approve the settlements, the ALJ directed the parties to either request permission to appeal or prepare for an additional 12 days of hearing in October 2018. McDonald’s has already requested permission to appeal.