Joint-employer woes could loom for McDonalds

The Equal Employment Opportunity Commission (EEOC) is reviewing complaints made against McDonald's and if they find reasonable cause to investigate the claims, it could lead to another dispute as to whether McDonald's is a joint employer with its franchisees.

This is a very significant issue for businesses that use the "operating agreement" model with their franchises. Under this type of a franchise contract, the franchisor provides very detailed rules and instructions on how the franchisee may operate the business. The National Labor Relations Board (NLRB) has recently expanded the definition of what constitutes a joint employer and it has significant ramifications for large franchisors, such as McDonald's.

The advantage of the current interpretation of joint employer status is that has allowed McDonald's to control much of the terms and conditions of employment without doing so directly. The workers argue that using the franchisee as an intermediary, McDonald's has de facto control, and the mere fact that a franchise entity does the actual hiring, firing, setting of wage rates and schedules is illusory.

For a business like McDonald's, with more than 14,000 restaurants, the prospect of being found to be a joint employer is problematic, as it would open up liability under the Civil Rights Act for discrimination, as with the recent sexual harassment allegations. It could also potentially allow for class-action lawsuits of all the workers in those thousands of sites and it would present a much easier target for union organization.

A side benefit of the franchise model for many employers is that it makes union organizing difficult and unwieldy, as each franchise would require a separate bargaining agreement. If McDonald's is a joint employer, a union could conceivably organize large swaths of their workforce, placing even greater competitive pressure on the company.

Given the stakes, the company is likely to litigate the matter in the courts all the way to the U.S. Supreme Court.