Eakinomics: NLRB, McDonalds and the Joint Employer Rule


This week an administrative law judge for the National Labor Relations Board (NLRB) will begin consideration of whether McDonald’s should be considered the “joint employer” of all McDonalds workers, instead of them being considered the employees of individual franchises. At issue is whether the franchise or the parent company is responsible for what employees say are poor working conditions and low pay at many McDonald’s franchises. If the judge rules accordingly, it would be the first time that a major franchisor would be found responsible for labor violations at individual locations. Treating McDonald’s and other franchisers as a joint employer would have implications for liability in labor violations and perhaps force the corporation to enter collective bargaining.

Franchises are major employers and have contributed significantly to the recovery, despite the increasing burdens placed on them. There are over 770,000 franchises that employ over 8.5 million workers. In the typical setup, the strength of franchising is the value of the brand, and franchises set standards to ensure quality and, thus, protect and enhance the brands. However, this typically does not mean that the franchisor sets particular employment or hiring practices. Franchisees determine who to hire and fire, wage rates and benefits, and work schedules.

In the past, the NLRB and the courts have rejected the joint employer thesis. If the NLRB flips its position, it would make the franchises responsible for monitoring and controlling behavior at all the outlets of franchisees. This would damage, perhaps fatally, the franchise model. Franchisees would lose their independence in running their businesses, a severe disincentive to entrepreneurs who pursue the franchise route. The heavy monitoring, control and negotiating costs will likely slow the growth of franchises and their employment.

The NLRB ruling is technical, but has vast implications for U.S. labor markets.

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