Carter & Tani

Preserving the Best Interests of Franchise Clients for 30 Years

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What Do You Mean They Are OUR Employees?

Most of us realize that the minimum wage is not a "living wage." Workers who earn minimum wage, even if they work full-time, struggle to support themselves, much less their families. It is this realization that prompts many of us to want to see the federal minimum wage raised from its present $7.25 to at least $10, or even $15 an hour. Walmart has on its own, without being compelled by law, raised its lowest pay rate to $10 an hour.

A recent development in the law involves McDonald's Corporation ("McDonald's Corporate") and complaints issued by the General Counsel for the NLRB (National Labor Relations Board). The General Counsel for the NLRB is seeking to have all employees of McDonald's US-based restaurants recognized as employees of McDonald's Corporate. That would include the employees of McDonald's franchisees, as well as those of McDonald's Corporate.

While the intentions of the NLRB and others who support this action are based on the motivation to improve the pay and working conditions of McDonald's employees, the potential consequences are far reaching. There are approximately 14,350 McDonald's restaurants in the United State. Of those, about 13,000, or 90%, are owned and operated by independent franchisees. It is those franchisees, not McDonald's Corporate, that hire their own employees. The franchisor, McDonald's Corporate, intentionally and for good reason refrains from getting involved in the employment decisions of its franchisees, who are and want to be independent business owners.

If McDonald's Corporate is ruled to be the employer (or "joint employer," a phrase used by the NLRB), the policies and practices of McDonald's Corporate toward its franchisees and their employees would have to radically change. By making McDonald's Corporate liable for the employment practices of its franchisees, the autonomy and independence of the franchisees would have to be curtailed. McDonald's Corporate would seek to recover from its franchisees the additional costs it would incur in connection with its employment-related liabilities. McDonald's Corporate and its franchisees would be forced to operate under a hybrid model, not exactly independent contractor (as it had been), and not exactly joint employers.

While trying not to sound alarmist, it is not a stretch to predict that franchising will undergo massive changes if the "joint employer" ruling becomes the law of the land. Who knows what will happen to franchisors, franchisees, their brand, and ironically, the employees, for whose benefit this legal action was brought in the first place. The whole franchising environment may become so hostile and cost prohibitive, that franchisors may cease franchising, and the franchisees and their employees may all find themselves without a livelihood.

In the meantime, what can we do to help protect franchisors from being considered "joint employers" of their franchisees' employees? We could revise the language in the franchisor's franchise agreements and franchise disclosure documents to clearly state that the franchisees are solely responsible for their own employment practices, including hiring, wages, conditions of employment, and discipline. We could also counsel franchisors to review their practices as they relate to their franchisees' relationship with their employees, so that franchisors are careful to refrain from getting involved in their franchisees' employment matters. Finally, where franchisors do provide guidance or recommendations regarding employment-related issues in their franchisees' operations, such guidance or recommendations should be presented as optional and not mandatory. By reviewing and revising documents, practices, and enforcement policies, franchisors can help protect themselves against being found to be joint employers of their franchisees' employees.

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