The National Labor Relations Board Office of the General Counsel has created a firestorm in the franchise community with its recent decision that McDonald’s and its franchisees will be treated as joint employers with respect to allegations that they violated the rights of employees. The NLRB’s decision strikes at the heart of the franchising business model, which is based on franchises being independently owned and operated businesses.
If upheld, the NLRB’s decision could have a substantially adverse impact on the franchise industry and the overall economy. Franchise development leads to economic and job growth. One would expect business owners to be reluctant to expand through franchising if they could potentially be responsible for their franchisee’s employees. This decision could also result in increased pricing of goods and services, as a franchisor would likely need to increase its revenues to deal with this new potential liability. Increased pricing could ultimately result in decreased consumer spending and stall economic growth.
It is worth noting that the NLRB’s decision represents the first step in its administrative process. McDonald’s will have the opportunity to defend itself in an administrative hearing and will also have the opportunity to appeal that decision to the NLRB Board. Even if the NLRB upheld a decision against McDonald’s, it would then need to be enforced by a federal court.
Whether the NLRB’s Office of General Counsel’s decision withstands the scrutiny of its entire board and the federal court system remains to be seen. While this process plays out, a franchisor should take this as a cautionary reminder to regularly review its operations manual and other policies to ensure that it is not unnecessarily exerting too much control over its franchisee’s employees. Unless a policy is absolutely essential to the health of the brand and System, a franchisor should err on the side of being suggestive vs. required when creating policies that impact a franchisee’s employees.