How NLRB's McDonald's Ruling Could Affect Franchise Relationships

August 15, 2014

The National Labor Relations Board’s recent ruling that McDonald’s can be held liable for labor violations by its franchise operators could have significant ramifications for businesses on both ends of a franchise relationship if upheld by the courts.

According to an analysis by NATSO’s legal counsel, the July 29 NLRB ruling that McDonald’s is the joint employer of its franchisees’ employees stands to set a new legal precedent regarding the degree to which franchisors are liable for franchisee employees.  The rule could ease the way for the formation of national unions by franchisee employees that would be their exclusive agent for collective bargaining purposes.   

In the petroleum industry, there are numerous business relationships that could be affected if the ruling stands. Whenever refiners or truck stop chains authorize franchisees to use their brands in connection with the sale of motor fuels, they risk “joint employer” status if the extent of their control of franchisee operations is deemed to meaningfully affect the essential working conditions of the franchisee’s employees. In addition, the numerous truck stop and c-store operators that operate quick-serve restaurant and other franchises could face increased wage and benefit scales as national unions gain a foothold in the industry.

The general counsel of the NLRB ruled July 29 that McDonald’s Corp. is liable for labor and wage violations by its franchise operators. McDonald’s has said that it will contest the decision before an Administrative Law Judge. If that judge upholds the decision, the issue would likely be taken to court and the appellate process could take years.  

Furthermore if upheld by the courts, small businesses ultimately could become responsible as joint employers for providing worker benefits such as medical insurance to the employees of the franchisee if employee numbers are counted on an aggregate basis.

While the NLRB decision is currently confined to McDonald's, it could prompt other federal agencies to follow suit and hold franchisors liable for regulatory violations by their franchisees.

NATSO will continue to follow developments in the case, and will keep members updated.   

NATSO has developed a document detailing the NLRB’s ruling as well as general guidelines to help petroleum marketers avoid joint-employer status in their dealer/franchise agreements.  To request a copy of the document, please click here.

Tiffany Wlazlowski Neuman's photo

Tiffany Wlazlowski Neuman

Tiffany Wlazlowski Neuman develops and executes communications strategies to advance NATSO’s public relations and advocacy goals. Tiffany also develops and oversees partnerships related to the NATSO Foundation’s public outreach initiatives. Tiffany lives in the D.C. metro area with her husband and their two sons.More
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