McDonald’s free from liability for franchise labor violations

Hassan A. Kanu

McDonald’s Corp. has won a huge victory in a multiyear legal battle over whether it should share responsibility for alleged labor violations in its franchisees’ restaurants, a case that posed a major threat to the franchise model underlying one of the largest employers in the world.

The federal labor board in a 2-1 ruling Dec. 12 ordered an agency judge to approve a roughly $170,000 settlement between McDonald’s franchisees and their workers that also absolves the fast food giant from any direct responsibility as a joint employer, the central goal of Obama administration officials who initiated the prosecution. The Republican majority board’s decision signals that the agency is unlikely to hold franchisers and companies that rely on contracted labor liable for labor law violations at their subsidiaries’ workplaces without strong evidence that the parent company directly controls the workers involved.

The settling of the case which an agency judge said is the “largest case ever adjudicated” in the history of the National Labor Relations Board also marks a significant setback for the labor movement. Worker advocacy groups and the Obama administration have backed the litigation against McDonald’s in hopes of a landmark ruling that could have been used to compel major franchisers and others bargain collectively with employees and share liability for workplace law violations.

The union-allied Fight for $15 and associated groups began filing unfair labor practice charges to the NLRB against McDonald’s in 2012, in conjunction with a protest and organizing campaign for higher wages and union rights. The charges generally alleged that McDonald’s franchisees fired and retaliated against employees for supporting union activity.

The groups argued that McDonald’s shares control over the workers in its franchisees’ restaurants, and also should share liability. The company disputed that it has sufficient say over the franchisees’ and workers in their restaurants to be considered a joint employer.

The NLRB reversed course in the case after President Donald Trump’s appointees to the agency took over. NLRB General Counsel Peter Robb paused the case just days before arguments closed in front of an agency judge. Lawyers in Robb’s office then hashed out a settlement offer with McDonald’s over objections from Fight for $15.

NLRB Administrative Law Judge Lauren Esposito rejected the proposed settlement as inadequate. The 2-1 board ruling overturned Esposito’s decision and approved the settlement.

“All settlements entail compromise, and the parties made concessions to arrive at a remedy for all affected employees,” the Board said in its opinion, adding that it disagreed that the terms are not reasonable.

“To preclude the resolution of Board litigation, on reasonable terms, simply because a proposed settlement does not mirror the remedy that could be achieved through successful litigation would undermine the Board’s interest in encouraging voluntary dispute resolution, promoting industrial peace, conserving the resources of the Board, and serving the public interest.’”

Board Chairman John Ring and member William Emanuel were asked to recuse themselves from the case because they came to the NLRB from law firms that had helped McDonald’s counter Fight for $15 actions. Ring wasn’t on the 3-person panel that decided the case, so the issue was moot as to the chairman; and Emanuel considered the motion but decided to participate, the Board said.

The NLRB has been dogged by conflict-of-interest concerns related to members’ participation in cases with ties to their former employers or clients. The board recently released a long-awaited report following a comprehensive review of its ethics restrictions.