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By: Allen E. Sattler
On March 19, 2018, McDonald’s USA LLC (“McDonald’s”) and the U.S. National Labor Relations Board (the “Board”) entered into a preliminary settlement to resolve many long-standing claims made against McDonald’s concerning its alleged labor law violations. The proposed settlement reportedly includes the resolution of all outstanding labor law charges against McDonald’s, with payments to individual employees ranging from $20 to $50,000. The primary issue that McDonald’s and the Board were litigating is whether McDonald’s should be considered a joint employer with its franchisee restaurant owners. If McDonald’s is found to be a joint employer with its franchisees, McDonald’s may be liable for violations of federal labor laws committed by those franchisees.
An entity is considered a joint employer where that entity has sufficient control over the essential terms and conditions of employment of another employer’s employee. The standard applied by the Board to determine whether sufficient control exists has changed over recent years. In August 2015, the Board expanded the scope of the standard by holding that an entity’s control over the employee need not be “direct or immediate” and that the entity need not actually exercise its control over the employee to be considered a joint employer. Rather, the mere reservation of a right to control the employee might be sufficient to establish a joint employment relationship. Browning-Ferris Industries of California, 362 NLRB No. 186 (August 27, 2015).
In December 2017 and acting under a new administration, the Board overruled its decision in Browning-Ferris and issued a strongly worded critique of that standard, stating that the “Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations.” Hy-Brand Industrial Contractors, Ltd., et. al., 365 NLRB No. 156 (December 14, 2017). The Board accordingly returned to the less-expansive standard that existed prior to Browning-Ferris. Pursuant to Hy-Brand, a finding of joint employer status requires proof that the entity actually exercised control over the employee, rather than merely reserving the right to exercise control, and the control must be “direct and immediate.” Also, a joint employer status will not result where the control is “limited and routine.”
In February 2018, the Board vacated its decision in Hy-Brand on ethical grounds, i.e., a disqualified member of the Board failed to recuse himself. Hy-Brand Industrial Contractors, Ltd., et. al., 366 NLRB No. 26 (February 26, 2018). The standard as articulated in Browning-Ferris once again became the controlling standard.
The McDonald’s litigation is significant because a trial on the joint employer issue might provide clarification of the appropriate standard to be applied by the Board, particularly in the franchise context, and a decision on the issue can have an enormous impact on other, similarly situated companies. If the preliminary settlement is approved, the joint employment status of McDonald’s remains an open question. The litigation will therefore not result in a clarification of the joint employer standard or have any precedential effect on future joint employer cases. Unless and until the Board re-visits this issue, the standard as articulated in Browning-Ferris appears to be the controlling standard.
If you have any questions or would like more information, please contact Allen Sattler at [email protected].