National Labor Relations Board Rules Parent Companies Are Joint Employers of Franchise Workers

Remember earlier this year, when McDonald’s and the International Franchise Association sued the City of Seattle over the idea that its franchisees would have to pay workers a $15 minimum wage? I have no update on that lawsuit, but I do have big news to share on the relationship between franchises, parent companies, and employees.

From the NYT:

The National Labor Relations Board, in a long-awaited ruling, made it easier on Thursday for unions to negotiate on behalf of workers at fast-food chains and other companies relying on contractors and franchisees.


Now, a company that hires a contractor to staff its facilities may be considered a so-called joint employer of the workers at that facility, even if it does not actively supervise them.

Time explains why this is such a big deal:

This means a union representing the workers could bargain with the parent company itself, not just the contractor. In other words, this ruling makes it easier for workers at McDonald’s to negotiate with the corporation, not just the individual McDonald’s location where they work.

The NYT predicts the ruling will be very quickly challenged by major corporations like McDonald’s and Yum Brands, and notes that some franchisees are equally unhappy:

Richard Adams, a former McDonald’s franchisee who runs a franchise consulting firm, said the ruling made no sense to him, given how most franchise businesses operate.

“It’s so far from the reality of what actually takes place in the business that it can’t have any practical application,” Mr. Adams said. “McDonald’s doesn’t control these employees — it doesn’t hire them, it doesn’t train them, it doesn’t supervise them, it doesn’t pay them, it doesn’t even have their Social Security numbers.”

The Week states that McDonalds’ franchisees have long been unhappy with their franchising model, though:

The funny wrinkle in McDonald’s case is that a lot of the company’s franchisees really don’t like the model. They have to pay the corporate mothership 4 to 5 percent of their revenue for a franchise fee, and then another 4 to 5 percent to go into an advertising fund. The franchises then have to pay another 12 percent to McDonald’s for rent. Meanwhile, the central company gives franchisees a slew of requirements in terms of remodeling, computer systems, and other expenses they must incur to stay in the franchise agreement.

I think the most interesting thing about these franchise stories is the one name that keeps coming up, over and over again: McDonald’s. All of these problems keep pointing back to one specific corporation. Still, this ruling appears to be a plus for all franchise workers, especially the part where they are allowed to unionize and negotiate with their parent company. (Possibly less of a plus for franchisees and corporations.)

What do you think? Was the NLRB’s ruling a wise one?

Photo credit: Mike Mozart

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