WASHINGTON -- The National Labor Relations Board (NLRB) ruled yesterday that franchisor companies could be liable for the labor practices of their franchisees. If the decision is not reversed, it could be a watershed development for the U.S. economy, including the convenience store industry, disrupting longtime business practices. This ruling would lead to huge potential liabilities for franchisors, facilitate easier unionization and remove one of the major reasons for operating through franchise agreements. 

Specifically, the NLRB’s General Counsel notified McDonald’s Corporation yesterday that it can be named as a “joint employer” for workers in its franchise-owned fast-food restaurants.  This would make the company liable for working conditions in its franchisees’ stores. The next stage of the proceeding is for the issue to be argued before an Administrative Law Judge. If that judge upholds yesterday’s decision, the issue would likely be taken to court. Such legal challenges typically take years to resolve.

Although the McDonald’s case concerned allegations of unfair labor practices, the outcome’s impact could be also be felt in wage and unionization disputes. It is much easier for unions such as the Service Employees International Union (SEIU) to target a single corporate entity and organize all of the workers at once, rather than having to approach and organize each franchisee on a piecemeal basis. Yesterday’s decision could enable unions to focus their efforts on a single corporate entity. Further, as workers in the fast-food industry have advocated for chains to adopt a minimum wage of $15 per hour, the companies have often said that franchise owners, not the larger corporate entity, set employee wages. This response would be substantially weakened if the larger corporate franchisor is considered a joint employer.   

“The NLRB’s flawed, unfortunate decision yesterday is very concerning,” said Lyle Beckwith, NACS senior vice president of government relations. “If it is not overturned, thousands of small-business convenience store owners could be forced to surrender control of the operations of their own company."

Yesterday’s development has its genesis in 181 unfair labor practice complaints filed with the NLRB against McDonald’s and its franchisees over the past 20 months. The NLRB’s general counsel announced yesterday that 43 such complaints had merit, and that he would include McDonald’s as a joint employer rather than limiting the defendant in those complaints to the franchisee.