McDonald’s Offers $170,000 to Settle Franchise Labor Beef

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

By Chris Opfer

McDonald’s USA LLC franchisees want to pay a group of franchise restaurant workers as much as $50,000 each to avoid having a judge decide whether the fast-food company is their “joint employer,” lawyers said April 5.

Attorneys for McDonald’s, a group of franchisee businesses, and the National Labor Relations Board asked an administrative law judge to approve a settlement that would compensate workers at McDonald’s locations owned and operated by franchisees across the country. The agreement would resolve an NLRB lawsuit alleging that the workers were retaliated against for participating in rallies organized by Fight for $15, a union-backed group pushing for higher wages in the fast food industry.

A group of 19 workers would receive payments ranging from $29 to $50,000, under the settlement agreement. The franchisees would pay a total of nearly $170,000 in back pay, taxes, interest, and missed future wages to the workers. McDonald’s would pitch in an additional $250,000 for nine months to a revocable settlement fund, available in the event franchisees violate the agreement.

In exchange, the settlement would stop Administrative Law Judge Lauren Esposito from deciding whether McDonald’s is the workers’ joint employer under federal labor law. The closely watched question has dogged the company since before the NLRB in 2015 expanded the ways in which one business can be considered an employer of another’s workers for union organizing, liability, and other purposes.

“McDonald’s USA LLC is not a joint employer,” Willis Goldsmith, a lawyer for McDonald’s told Esposito during a hearing today. “We were never going to concede that point, and that was never going to be part of the settlement agreement.”

Franchisees own and operate roughly 85 percent of the more than 14,000 McDonald’s restaurants in the U.S. The settlement agreement provides that McDonald’s can’t be treated as a joint employer of franchisee workers based on its contribution to the settlement fund.

The company has become a reluctant face of the joint employer debate in recent years. The International Franchise Association has painted expanded joint employer liability as a threat to franchisee operators that the group likens to modern day mom-and-pop shops. But the primary legal question is whether larger affiliated companies assert enough control over franchisee, contractor, and other operations to create a de facto employment relationship with their workers.

Critics of the NLRB’s current approach, which allows businesses to be tagged as joint employers if they have indirect control over workers, say it makes companies liable for other business’s workers. Supporters say widened joint employment cuts through complicated contractual relationships to give workers a seat at the table with the business that actually dictates the terms and conditions of their jobs.

Worker Group Claims Rush Job

Fight for $15 lawyer Kathy Krieger told the judge McDonald’s has been stalling the case, waiting for the NLRB to reverse its position on joint employer liability. She also said NLRB General Counsel Peter Robb’s office disregarded traditional settlement procedures in a push to resolve the case before trial was set to start back up last month.

“In the last-ditch rush to close the case, there were artificial deadlines” and “many departures from the processes and procedures” that the NLRB usually uses to protect workers’ interests, Krieger said. “In short, we’ve seen quite the opposite of the ‘measure twice, cut once’ approach that historically has been followed by this agency when pursuing settlement.”

The NLRB—under former General Counsel Richard Griffin—alleged in 2014 that McDonald’s franchisee operators fired some workers and reduced others’ hours for participating in Fight for $15 and other protests. Board lawyers previously argued that McDonald’s should be considered the workers’ joint employers under either the expanded approach adopted by the NLRB in the Obama administration or the limited “direct control” standard previously in place. Griffin also refused to discuss any settlement of the case that didn’t include McDonald’s taking responsibility as a joint employer.

Robb indicated shortly after he was confirmed for the general counsel job last year that he wants to reconsider the Obama-era joint employment test. A Republican-majority board briefly reverted to a more limited standard in December, but that decision was later scrapped because of conflict-of-interest concerns stemming from Member William Emanuel’s (R) participation in the case.

Emanuel’s former law firm, Littler Mendelson, represents a staffing firm in Browning-Ferris Industries, the case in which the Obama board widened the joint employment test. NLRB Inspector General David Berry said Emanuel should have sat out Hy-Brand Industrial Contractors, the case the board used to try to overturn Browning-Ferris late last year.

NLRB attorney Alex Ortiz urged Esposito to approve the settlement.

Long Time Coming

Esposito, who would have to approve the settlement for it to be effective, didn’t tip her hand during the three-hour hearing.

The judge said she isn’t sure the joint employment question needs to be answered. She noted that the workers didn’t demand to collectively bargain with McDonald’s. Esposito also said the company and the franchisees were offering to compensate the workers for the alleged retaliation.

Goldsmith, the McDonald’s attorney, accused Fight for $15 of disregarding the interests of the workers who would be compensated under the settlement. He said those workers would have to wait “years” to be compensated, if at all, if the settlement isn’t approved.

But Esposito also expressed skepticism about the company and NLRB’s assertion that the settlement would help avoid wasting government resources on continuing the trial. She said the trial had already spanned some 100 days and was a “week or a week-and-a-half” from being completed.

“You’ve been exhausting agency resources for three years now,” Esposito said.

Request Labor & Employment on Bloomberg Law