When Is A Company A Joint Employer With Its Franchise Operators?

The National Labor Relations Board made a finding that has caused management-side employment lawyers to blow several gaskets, namely, that McDonald's is a joint employer with a franchise owner and is thus responsible for labor law violations that occurred in a McDonald's workplace. And you're thinking, "duh," right? I mean, why wouldn't McDonald's be responsible for what happens in a McDonald's?

As with everything else in my chosen profession, it's not that simple. For many years, corporations have escaped liability for discrimination, labor law issues, overtime and unpaid wages by pointing the finger at the poor schmo who bought a franchise from them instead of manning up and taking responsibility for what happened under their name. (And yes, I said "manning," which could be sexist, but if companies are people and what kind of people is based on who is on the board, then almost all corporations are male people, aren't they?)

In general, two employers are considered joint employers if both exert significant control over employees. There are lots of complicated tests for this that make sense only to lawyers. I've pretty much always thought that franchisors (the parent companies) should be considered joint employers under most of these tests, but the companies have frequently managed to escape liability.

In the McDonald's case, employees were able to show that McDonald's provides software to franchise operators that tells them how many employees should work at any given time, and that the company also weighed in on how much employees should be paid. I can also point to some other types of control these parent companies have. They frequently train employees or provide training materials, provide uniforms, inspect uniforms, decide the very specifics of how employees are to do their jobs all the way down to portion size and customer greetings, send secret shoppers to gauge how employees are performing, and exercise other control over these employees.

Why do we care? Two reasons:

• Deep pockets: While the small company that bought the franchise may be tiny and barely solvent, the mega-parent companies can usually pay big bucks judgments.
• Counting employees: Federal discrimination laws don't cover employers with fewer than 15 employees. Family and Medical Leave Act doesn't kick in unless the employer has 50 employees within a 75 mile radius of the employee work location. There are quite a few employment laws that require minimum numbers of employees. If you can count all the franchises and parent-owned entities, you can count to 15 or 50 pretty easily, which means liability on both parent and franchise owner.

This ruling will have parent companies scrambling to exercise less control over franchise operations, which, in my opinion, is penny wise and pound foolish. If you can't count on all McDonald's restaurants looking the same, serving the same quality food and having employees look and act the same, they lose their brand. Instead, companies should be scrutinizing their franchises to make sure they are complying with employment laws instead of saying, "It's not my problem."