An attack against the franchise model and specifically against McDonald's by the Service Employers International Union (SEIU) is underway seeking to hold McDonald's as a "joint employer" alongside its franchisees. If the National Labor Relations Board (NLRB) views McDonald's as a joint employer with its franchisees, SEIU will strive to get workers to unionize en masse.
As we previously reported in August, on July 29, 2014, SEIU won a victory in front of the Chief Prosecutorial Officer (CPO) of the NLRB. The CPO held that McDonald's is a joint employer with its McDonald's franchisees. As such, McDonald's, as a franchisor, can be liable in lawsuits filed by a franchisee's workers. The claims in that matter involve the Fair Labor Standards Act (FLSA), wherein the franchisee's employees asserted that they were forced to work off the clock and were not paid overtime. McDonald's is appealing and maintains that the decision goes against years of established law regarding the United States franchise model. McDonald's insists it does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of its franchisees' employees, which has been the criteria governing the definition of a "joint employer."
On December 19, 2014, the NLRB issued 13 complaints involving 78 charges by workers that McDonald's and many of its franchisees across the country illegally interfered with collective efforts to organize and improve working conditions. The complaints will go to trial before administrative law judges. In the complaints, the NLRB defines McDonald's as a joint employer with its franchisees. In another matter involving Browning-Ferris Industries and a subcontractor, the NLRB is considering a broader, more inclusive definition of joint employer that was in effect prior to 1984.
Last week, McDonald's was sued along with a franchisee on a joint employer theory in a multi-plaintiff Section 1981 and Title VII discrimination lawsuit.1 While the NLRB cases are different, in addition to the likelihood of mass unionization, we should expect more lawsuits against franchisors if the NLRB's recent positions are upheld.
On January 22, 2015, ten plaintiffs filed a discrimination lawsuit against McDonald's Corporation and McDonald's USA, LLC (collectively, McDonald's Corporate), Soweva Co. (Franchisee), and the Franchisee's owner. The plaintiffs—three males and seven females— range in age from 29 to 53. Nine are African-American and one is Hispanic.
Joint Employer Allegations
Plaintiffs assert discrimination claims against the defendants, including McDonald's Corporate, on the basis that McDonald's Corporate and its Franchisee are joint employers. Specifically, they claim that McDonald's Corporate maintains the right to control all operations at franchised restaurants through its franchise agreement and business manual and is the Franchisee's landlord. Plaintiffs allege that McDonald's Corporate ensures compliance with its policies by "regularly send[ing] a corporate representative to every franchised restaurant...." The plaintiffs claim that McDonald's Corporate's Business Consultants' directions to franchise operators must be followed.
Plaintiffs also claim that McDonald's Corporate controls the details of when employees work and what tasks they perform through its franchisees' use of McDonald's Corporate's mandatory computer systems and software. The mandatory software programs allegedly control the franchisees by prescribing restaurants' staffing levels; generating weekly employee schedules; positioning crew members within restaurants; monitoring each restaurant's labor expenses and sales receipts so that McDonald's Corporate can instruct franchisees on reducing labor costs; tracking employee hours, sales made, customer counts, transactions per worker-hour, and labor costs. Additionally, plaintiffs allege that McDonald's Corporate is a joint employer such that it can be liable under Title VII and Section 1981 because it controls the operations at franchised restaurants through mandatory manager training sessions, monitors employee relations, and assesses all job applicants at franchised locations before they are hired.
Claimed Discrimination
Some of the stores operated by the Franchisee were previously operated by a different franchisee during which the plaintiffs claim sexual and racial harassment occurred by two managers and at least one other employee. Plaintiffs allege that McDonald's Corporate was put on notice of the alleged mistreatment. In or around December 2013, Franchisee took over the locations and promoted one of the managers. The other manager, who had previously been fired shortly after racial harassment allegations had been made, was rehired as an assistant supervisor by the Franchisee.
Plaintiffs claim the managers engaged in "rampant racial and sexual harassment" including using racial epithets, denigrating them because of their race, and engaging in offensive sexual language and actions. The Complaint details many specific statements and actions that were allegedly made against the plaintiffs. Plaintiffs also allege that white employees were treated differently than African-American employees for rule violations, with white employees being forgiven without punishment. Further, shortly after Franchisee took over, plaintiffs allege that the Franchisee's owner decided to reduce the number of African-American employees by hiring white workers and then terminating African-American employees. Nine of the plaintiffs assert that they were harassed and terminated because of their race and another was harassed and constructively discharged as a result of her race. Finally, two of the plaintiffs also claim they were sexually harassed.
We expect McDonald's Corporate to forcefully argue it must be dismissed by challenging the joint employer allegations. Given the recent NLRB actions, franchisors will be paying close attention to this case and are aggressively fighting against these threats to their business model.
Footnotes
1 Betts, et al. v. McDonald's Corp. et al., Case No. 4:15-cv-00002 (W.D. Va. Jan. 22, 2015).
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