Brandau: Franchising’s ‘Joint’ Pain

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We can’t know for sure how long or how hard McDonald’s Corp. will have to fight the National Labor Relations Board as it appeals last month’s determination that the quick-service franchisor could be considered a “joint employer” with its more than 2,000 franchisees. So I won’t predict with any certainty whether the ruling, which originated with the NLRB’s Division of Advice and must be affirmed by the board’s New York Regional Office, will stand. But if I may speculate, I would predict that the law would ultimately side with McDonald’s and the thousands of franchisors implicated in this controversy, because the NLRB’s reasoning seems to be based on flimsy logic. The lawyers, organizers and civil servants aligned against McDonald’s in this case either fundamentally misunderstand franchising or cynically want to see the model changed. First, just consider the most practical part of a restaurant location’s payroll. Who is signing the paycheck a crew member receives at that unit? If it’s McDonald’s Corp., sure, then the franchisor is the employer. But if the paycheck comes from the franchisee, and is paid out of a bank account to which the franchisor has no access, then the franchisee is the sole employer. Of course McDonald’s Corp. does not employ every single employee in its more than 14,000 locations in the United States. The brand got into franchising precisely because it doesn’t want to recruit, hire, train, retain or fire that many people; it probably has more than enough people to take care of at the 10 percent of its U.S. system it does own and operate. Were McDonald’s Corp. responsible for that many people on its own, there is no way it could have grown as large as it has over the past 50-plus years. Franchising allows for that fast, nationwide growth, because a franchisee puts his or her personal capital, time and knowledge of the local market to use around the country. Activists released two telling quotes to the media when the ruling came down, neither of which validate the idea of a joint employer. “McDonald’s clearly uses its vast powers to control franchisees in just about every way possible,” Kendall Fells, organizing director of Fast Food Forward, said last month. “It’s time the company put those same powers to work to do something about the fact that its workers are living in poverty.” Micah Wissinger, an attorney with Levy Ratner P.C. in New York who sued McDonald’s on behalf of several crew members, added: “McDonald’s can try to hide behind its franchisees, but today’s determination by the NLRB shows there’s no two ways about it: The Golden Arches is an employer, plain and simple. The reality is that McDonald’s requires franchisees to adhere to such regimented rules and regulations that there’s no doubt who is really in charge.” There’s the misunderstanding: Franchising isn’t “hiding behind” anybody. It’s an agreement to let business owners adopt a proven model and brand, in exchange for a percentage of sales that model helps produce. There’s nothing more sinister going on. (Also, when was the last time a franchisor complained it had too much control over its compliant, pushover franchisees?) Neither Fast Food Forward nor Mr. Wissinger advance their causes by making a franchisor like McDonald’s liable for alleged wrongdoing by franchisees. Currently, if a franchisee violates some kind of wage or labor law, that operator can be sued and likely go out of business. The franchisor also has recourse and could force that bad actor to exit the brand by selling out or by not renewing a franchise agreement. That’s how the system is supposed to work. But to assume McDonald’s or any other franchisor perpetuates the franchise model that has worked for decades, simply to get away with disreputable labor practices, doesn’t make any sense. Which is why I can’t see the NLRB’s determination holding up.