July 29 (Bloomberg) -- The National Labor Relations Board’s general counsel determined that McDonald’s Corp. has joint responsibility with restaurant owners over how employees are treated, a decision that shakes up the decades-old fast-food franchise system and hands a victory to union activists.
In cases involving restaurants allegedly violating the rights of McDonald’s workers who engaged in protests, General Counsel Richard Griffin found that the parent company should be considered a employer, along with the restaurant owners involved. If the parties in the disputes can’t reach a settlement, McDonald’s will be held jointly responsible, the NLRB said today in a statement.
The move was celebrated by labor groups, while retail organizations said the “outrageous” decision threatens an economic system that employs millions of Americans. If upheld, the determination would bring McDonald’s to the table during collective bargaining, which would make forming a union more attractive to workers, said Wilma Liebman, a former chairman of the NLRB. McDonald’s and other chains also may have to step up its policing of franchises and spend more money monitoring stores to prevent labor infractions.
“The last thing this economy needs is decisions like this which merely serve to stall job growth and diminish much needed capital investment,” David French, senior vice president for government relations at the National Retail Federation, said in a statement. “The very people the NLRB was established to protect -- American workers -- may be the ultimate losers in this decision.”
McDonald’s U.S. restaurants are 90 percent owned by franchisees. They pay a percentage of their sales to the parent company, which manages the brand and image. McDonald’s, which will challenge the ruling, has said it has a hands-off role when it comes to store employees.
Now the company can no longer say that working conditions aren’t its responsibility, said Micah Wissinger, an attorney at Levy Ratner who brought charges to the NLRB on behalf of workers in New York City. That means unions will have more power in negotiating with the fast-food chain.
“There really is no doubt who is in charge,” he said on a conference call.
With allegations of unfair labor practices, McDonald’s would bear partial responsibility for the conditions and be responsible for any remedy, said Liebman, who has advised the Service Employees International Union on joint-employer issues.
Griffin’s decision stemmed from cases in which employees claimed McDonald’s fired or suspended them for joining labor unions. By including the company in their charges, the workers said the corporate parent should be held responsible for the actions of individual restaurants.
McDonald’s, based in Oak Brook, Illinois, said the decision would unfairly change the rules for thousands of small businesses, along with other corporations that rely on franchising.
“This decision to allow unfair labor practice complaints to allege that McDonald’s is a joint employer with its franchisees is wrong,” Heather Smedstad, the restaurant chain’s senior vice president of human resources, said in a statement. “McDonald’s will contest this allegation in the appropriate forum.”
Worker groups say that McDonald’s monitors store employees more closely than it contends.
Richard Eiker, who mops floors and does other maintenance work at a McDonald’s in the Kansas City, Missouri, area, said company executives keep close tabs on how franchises operate, visiting as often as six times a year. He said on a conference call that he hoped the decision will make it easier for workers to win higher wages.
McDonald’s is under increasing pressure to raise wages amid national protests and strikes. On May 21, the day before McDonald’s annual meeting, fast-food workers protested at the company’s headquarters. McDonald’s told most of its 3,200 headquarters employees to stay home to avoid the demonstration and heavy traffic.
This week’s decision may make it easier for McDonald’s workers to unionize because the corporation is now seen as an employer of thousands of store employees across the country, said Paul Millus, an employment-law attorney at Meyer, Suozzi, English & Klein in Garden City, New York.
Shares of McDonald’s, which has more than 14,200 U.S. restaurants, were little changed today in New York trading. The stock has lost 1.2 percent this year, while the Standard & Poor’s 500 Restaurants Index has gained 0.8 percent.
New York Employees
Worker groups accused McDonald’s locations in New York of terminating nine employees for their union involvement and organizing activities, according to NLRB documents obtained by Bloomberg News. The workers also alleged that McDonald’s restaurants suspended employees, cut their hours and threatened them with termination for union activities.
Since November 2012, 181 cases involving McDonald’s were filed with the National Labor Relations Board, according to the agency. Sixty-eight of the cases were found to have no merit, while 43 moved forward. Investigation is still pending with an additional 64.
If a settlement isn’t reached, then the cases would be argued before an administrative law judge. Those rulings can then be appealed to the NLRB itself, and ultimately to federal courts.
The International Franchise Association estimates that 8.5 million Americans work for franchised businesses.
“This legal opinion would upend years of federal and state legal precedent and threaten the sanctity of hundreds of thousands of contracts between franchisees and franchisors, a bedrock principle of the rule of law,” the group’s chief executive officer, Steve Caldeira, said in a statement. “Franchise job growth and new business formation have outpaced non-franchise growth for the last five years but will undoubtedly come to a screeching halt if this decision is affirmed.”
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