The Franchisor as the Employer of the Franchisee’s Employees: Settlement of McDonald's Lawsuit Rejected

The Franchisor as the Employer of the Franchisee’s Employees: Settlement of McDonald's Lawsuit Rejected

      In recent years both the National Labor Relations Board (the “NLRB”) and private parties have brought suits asserting that, at least upon particular situations, a franchisor should be treated as the joint-employer of the employees of a franchisee. One of those suits brought by the NLRB related to McDonald’s, as the franchisor, and various of its franchisees, the suit based upon the theory that McDonald’s could be held liable for franchisee violations of labor laws.

      It has been reported that McDonald’s, representatives of the franchisees and of the aggrieved employees had negotiated a settlement of the dispute. Specifically, as reported in an article published on Law360, Worker Advocates Say NLRB Deal Let’s McDonald’s Off Hook (May 7, 2018):

According to settlement documents, McDonald’s franchisees agreed to post notices that collectively address all obligations in the complaints and give full back pay to certain workers along with taxes, interest and, potentially, monetary payments in lieu of reinstatement for individuals who were discharged.

McDonald’s, meanwhile, agreed to support the settlement by taking responsibility for the establishment of a $250,000 settlement fund, an amount provided by the franchisees, and distributing any unused funds back to franchisees at the end of a specified period. The settlement documents also contain language that McDonald’s and its franchisees are not joint employers.

      That proposed settlement has now been rejected by the NLRB's administrative law judge. Apparently one basis for the rejection was that the settlement would not go as far as would a potential finding that McDonald’s, as the franchisor, is a joint-employer with the franchisee.

       Obviously, this debate will continue.

       On a related point, in 2017, the Kentucky General Assembly passed amendments to a number of Kentucky statutes governing the employer/employee relationship and stating expressly that the franchisor is not a joint employer with the franchisee. See Rutledge, The 2017 Amendments to Kentucky’s Business Entity Statutes, 56 Louisville Law Review 55,footnote 155 (Fall 2017).; HERE IS A LINK to that article.