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Megan McArdle

Unions Are Lovin' McDonald's Labor Ruling

You shouldn't be able to sue McDonald's Corp. just because some jerk in Omaha violated local health codes.
But think of the franchise owners!
But think of the franchise owners!

The most surprising bit of news this week was a ruling out from the National Labor Relations Board, saying that McDonald's Corp. functions as a joint employer with its franchisees and can therefore be held liable for their employment decisions. The immediate effect is to join McDonald's to a few dozen labor disputes at individual stores. But the goal is pretty clearly much larger: making it much easier to unionize McDonald's, by allowing unions to organize the whole company, rather than trying to eke out victories one store at a time. If this ruling stands, it will have seismic effects on the franchise model.

I'm not sure this ruling will stand, of course; it seems crazy to me. Corporations that work on the franchise model do exercise substantial control over the operations of their franchisees, but at the end of the day, the franchisees are legally separate companies -- and those companies are the ones that pay the paychecks, organize the schedules, hire, fire and so forth. This would hand McDonald's legal liability for something it has limited ability to control. Oh, sure, the franchise agreement can state that owners have to obey the labor law, but franchise owners are owners; McDonald's can't just fire them for being jerks. It can terminate the franchise agreement, but that's a lengthy procedure that frequently involves lawsuits. It's not a very efficient way to enforce employment policy. This is the equivalent of saying that you can sue McDonald's because some jerk in Omaha violated the local health codes.