The Franchise Memorandum

As has been widely reported in the media, the National Labor Relations Board last month filed complaints in 13 regional NLRB offices charging multiple McDonald’s franchisees with unfair labor practices relating to union organizing activities at McDonald’s franchised restaurants across the country. The NLRB also alleged that McDonald’s USA, LLC is liable for the alleged labor violations as a “joint employer” with its franchisees. The claims against the McDonald’s franchisees allege a variety of unfair labor practices, including reducing working hours, forbidding communication with union representatives, changing schedules, issuing written warnings and threatening termination in response to employees’ efforts to engage in union organizing activities. To support its claims against the franchisor, the NLRB asserted that McDonald’s USA, LLC has a franchise agreement with each of its franchisees and “possessed and/or exercised control over the labor relations policies” of the franchisees, and is therefore a joint employer of the franchisee’s employees. As a joint employer, the NLRB claimed that McDonald’s interfered with, restrained, and coerced employees in the exercise of their rights, and discriminated with regard to the hire or tenure or terms or conditions of employment of the employees, thereby discouraging membership in a labor organization.

The “McDonald’s Fact Sheet” issued by the NLRB announcing the filings explains the basis for the joint employer claim. In it, the NLRB states: “Our investigation found that McDonald’s, USA, LLC, through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees' operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations of our Act.” The NLRB clearly intends to point to McDonald’s comprehensive computer system, which tracks labor usage and costs, as one of the primary means of controlling the franchisee’s operations, including employment decisions.

On Dec. 29, 2014, McDonald’s filed a motion in the NLRB action venued in New York City. In its motion, McDonald’s asserts that the conclusory allegations regarding its joint employer status provide insufficient notice of the basis for the alleged joint employer status and deprive McDonald’s of its fundamental right to due process. McDonald’s seeks an order requiring the Regional Director to specify with particularity the underlying factual basis for the joint employer allegations or strike the allegations from the complaint and dismiss McDonald’s. The NLRB has yet to respond.

The first hearing on the NLRB’s complaints is set for March 30, 2015.

The NLRB’s move to name McDonald’s as a joint employer is one of multiple actions it has taken recently that could impact franchisors. A week earlier, the NLRB released new “quickie” election rules that dramatically reduce the time an employer has to prepare for and respond to a union election campaign. One such change requires employers to wait until after an election in order to litigate any disputed issues that are not necessary to determine whether an election is appropriate. As a result, it is unclear whether a franchisor that is named as a joint employer in an election petition could immediately raise jurisdictional issues, or must wait until after the election to challenge its status as an employer. On Jan. 7, 2015, a group led by the U.S. Chamber of Commerce filed a lawsuit challenging the validity of these rules on constitutional grounds. Whether the challenge will be successful will likely not be known, however, before the new rules take effect on April 4, 2015. In addition to the new election rules, the NLRB issued a decision on Dec. 6, 2014, reversing a previous ruling and requiring that employers who generally permit employees access to company email allow employees to use that email system for a variety of protected activities including union organizing.

What does all this mean to franchisors? The NLRB’s recent actions make it clear it intends to eliminate barriers to unionization in the franchise space. By making franchisors ostensible “employers” of franchisees and their employees, it opens the door for unions to organize across entire franchise systems instead of individual franchisee locations. Add to this the right to use company email systems for organizing activities and restrictions on an employer’s ability to challenge “quick” elections, and the table is set for unions to swell their diminishing ranks with franchisee employees.