Who's The Boss? Labor Board Says It's McDonald's, As Much As Franchisee

In a preliminary finding, the National Labor Relations Board said McDonald's could be held responsible for its franchisees' mistreatment of workers on wage and firing issues. It's an early step, but it's already sending tremors through the fast-food industry and other areas of the economy that depend on contracted or franchised workers.

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This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

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And I'm Audie Cornish. Who do you work for? Many of us can answer that question pretty easily, but for millions of people who work in franchise businesses, the answer can be more complicated. For example, do you work for McDonald's, or the franchisee? For decades the legal answer has been the franchisee, but now the National Labor Relations Board is considering changing the rules that determine who is an employer. NPR's Yuki Noguchi explains.

YUKI NOGUCHI, BYLINE: To Christine Owens it's not hard to determine who's calling the shots at any given McDonald's.

CHRISTINE OWENS: The prices are the same. The promotions are generally the same. The uniforms are the same. The physical structures are typically the same.

NOGUCHI: Owens is executive director of the National Employment Law Project which advocates for workers. She argues that although a store may be nominally owned by a franchisee, it's really controlled by and an extension of the fast food parent. This question of who is the real boss, or in legal terms, whether McDonald's is a joint employer, is the issue before the National Labor Relations Board. If McDonald's is, then it and the franchisee are both legally the employer and, therefore, jointly responsible in wage and labor disputes. McDonald's and its supporters argue franchises are independent businesses and, therefore, McDonald's is not responsible for franchisee's pay and hiring decisions. But last week, the NLRB's top lawyer found McDonald's is a joint employer and, therefore, party to 43 recent lawsuits brought by workers. In the business world, this is a potential watershed event. And Owens and workers unions say it's a good development.

OWENS: If parent corporations recognize that they can be held accountable for what happens in their franchised operations, they have a much stronger incentive to ensure that their franchisees know what the law requires and that they're following those laws.

NOGUCHI: The general council's recommendation must be approved by the NLRB and may then be subject to legal challenge. But if it ultimately holds, it could have huge implications for the fast food industry and beyond. For one thing, there are 800,000 franchise operations around the country that employ more than 8 million people. In a separate case, the NLRB is seeking public comment regarding a recycling company, and that could have implications for legions of companies that use contractors. Zachary Fasman is a private attorney representing many companies that use the franchise model.

ZACHARY FASMAN: I don't think you can overestimate the impact of a change in joint employer standards. I mean, it's all across industry.

NOGUCHI: Fasman says it would also empower unions by giving them leverage over big companies, and those companies fear they might be held liable for the labor practices of their contractors or franchisees that they don't even know about.

FASMAN: Tens of thousands of businesses have conducted their affairs based on the joint employment model that's been in effect for 30 years. You're asking all of those businesses to take a look at every single subcontracting relationship. That's a huge task.

NOGUCHI: Steve Caldeira is president and CEO of the International Franchise Association. He says the NLRB council's recommendation misunderstands how franchising works.

STEVE CALDEIRA: Franchisees are independently owned, and they have the responsibility to hire, to fire. They set their employees wages and benefits and other employment terms. They establish working conditions, process their own payroll, and most importantly, they pay their own taxes.

NOGUCHI: But Wilma Liebman says businesses are increasingly using those arrangements as shields. Liebman is former chair of the NLRB, and during her time there she argued large companies insulate themselves from labor laws by franchising or contracting their work. She says she expects the current board will eventually adopt the recommendation.

WILMA LIEBMAN: It is really obliged, in some ways, to make sure that its doctrines fit with changing economic realities.

NOGUCHI: McDonald's has pledged to contest the NLRB council's finding. Yuki Noguchi, NPR News, Washington.

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