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McDonald's scores key wins in 'joint employer' legal battle, but war continues in attempt to unionize franchise shops

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By Jonathan Bilyk | Dec 16, 2019

Mcdonalds

McDonald’s in recent weeks has scored two major legal victories in its ongoing battle over attempts by labor unions and their supporters in the state and federal governments to make the world’s largest fast food purveyor responsible for the wages and working conditions of the many thousands of workers employed by the chain’s franchisees across the U.S.

And the decisions could have massive legal consequences for franchise employers throughout the country, redefining the landscape as the battles over so-called joint employer liability continue to play out, primarily in the courts and in state capitols dominated by unions and their allies – a fight some believe could come soon to Illinois, too.

Most recently, the National Labor Relations Board came down on McDonald’s side in years-long contest with labor unions who were seeking an easier legal path to unionizing McDonald’s restaurant workers nationwide.

The effort – nominally part of the so-called Fight for $15 campaign, which sought to establish a nationwide minimum wage of $15 per hour – had received a boost in and around 2015 when the NLRB, then under the control of the administration of Democratic President Barack Obama, had filed court actions at the behest of unions to secure a federal determination that Chicago-based McDonald’s Corp. was a “joint employer” of all workers at all of the franchise-owned restaurants under the Golden Arches in the U.S., no matter who hired them, can fire them, or who issues their paychecks.

The legal campaign was sparked in 2014 when labor unions, including the Service Employees International Union, had complained to the NLRB that McDonald’s was using its franchise business model to allegedly wrongly avoid responsibility for alleged labor violations and collective bargaining.

The legal question at the heart of the actions would have had profound consequences for a number of major brands, as well. Private wage class actions, for instance, against companies like Amazon and Jimmy John’s have sought to use joint employer status to boost the potential payday for plaintiffs and their lawyers, should they win.

However, under President Donald Trump, control of the NLRB, and its apparent stance on joint employer status, shifted.

Last week, the NLRB signed off on a settlement deal to end the conflict against McDonald’s, in McDonald’s favor.

NOT JOINT EMPLOYER 'UNDER ANY STANDARD'

The settlement had been reached in 2018 between McDonald’s and the general counsel of the NLRB, which was tasked with leading the prosecution of the union’s unfair labor charges. The settlement would allow McDonald’s franchisees to resolve the issues at a local level, while allowing McDonald’s to avoid the joint employer designation sought by unions.

An administrative law judge with the NLRB presiding over the unions’ complaints had rejected the settlement, saying it fell short of the “remedial effect” that would be achieved, should McDonald’s be declared a joint employer.

That decision was overturned by a three-member panel of the NLRB. In the 2-1 decision, the NLRB panel said the settlement resolves the disputes with the workers at the center of the unions’ grievances, while allowing the NLRB to avoid potentially more years of costly litigation over the joint employer status, with little guarantee of success, in the opinion of the panel’s majority.

“From the employees’ point of view, the remedy they will receive under the settlement agreements is essentially identical to that which they would have received if the General Counsel’s joint-employer theory had prevailed, except for a broader notice-posting requirement,” the majority said.

“This is especially true given that the complaint does not allege that McDonald’s independently committed any unfair labor practice itself. Despite the significant agency time and resources expended in making a joint-employer showing, the General Counsel reasonably adjusted litigation priorities and sought to settle the complaint in return for a remedy for all of the alleged violations by the purported wrongdoers.”  

The panel further noted there was no precedent available under labor law “finding McDonald’s to be a joint employer under any standard.”

A third-member of the panel, who had been appointed by President Obama, dissented from the decision, declaring the decision marked a continued effort by the NLRB in recent years to “arbitrarily (put) the Board’s stamp of approval” on employers’ efforts to end joint employer actions “by purported settlement … while illustrating a double standard for resolving cases without reaching the merits.”

'ILLINOIS MAY WELL BE NEXT'

The NLRB’s decision comes weeks after McDonald’s also scored a win in a major decision in federal court in California.

There, a three-judge panel of the U.S. Ninth Circuit Court of Appeals had ruled McDonald’s could not be considered a joint employer with its franchisees under California state law.

That decision, in the case known as Salazar v McDonald's, appeared to end a class action lawsuit brought against McDonald’s by a class of more than more than 1,000 workers who argued McDonald’s should be held jointly liable with its franchisees for allegedly requiring franchisees to use a software system the lawsuit said shorted workers overtime, meal breaks and other benefits required by California law.

The judges ruled the evidence didn’t reveal McDonald’s exerted enough control over the day-to-day operations of its franchisees to make it a joint employer. Rather, the court said, McDonald’s control was “geared specifically toward quality control and maintenance of brand standards.”

The judges said the joint employer designation doesn’t apply to McDonald’s under any legal standard, including under the so-called “ABC Test” spelled out by the California Supreme Court in the case docketed as Dynamex Operations West Inc. v Superior Court.

Under that test, introduced in the Dynamex decision in 2018, the California high court said workers could be considered employed by a company if they A) are under its control and direction; B) perform work that is in line with the “usual course” of the company’s business; and C) is employed in the “same nature” as the company’s work.

The reasoning was passed into law in a new California law, known as AB5, which is scheduled to take effect in 2020.  The law had been intended to address attempts by companies, like Uber, to treat workers as independent contractors, and not employees.

The Ninth Circuit declared the Dynamex ABC Test doesn’t apply to questions of joint employer status.

The decision, however, drew the ire of California state officials, who, through the state's Division of Labor Standards Enforcement, filed a brief asserting the decision creates a conflict with other California Supreme Court and Ninth Circuit decisions on the joint employer questions at play. Specifically, the state argued the Ninth Circuit too narrowly decided the question of whether McDonald's served as a joint employer, limiting it to whether McDonald's had control over the "fact of employment," and not whether McDonald's caused its franchisees to allegedly violate California labor law.

The state argued the California Supreme Court could interpret California law to mean employers are joint employers even if they had "control over only a single aspect of the employment relationship." 

California urged the Ninth Circuit to withdraw the Salazar decision and send those questions to the California Supreme Court to be unraveled.

Michael Lotito, an attorney who co-chairs the Workplace Policy Institute for the Littler firm, in San Francisco, however, said the decision was correct. He indicated it could complicate efforts by labor unions to promote the use of the ABC Test to hang joint employer liability on McDonald's and other franchise-based organizations nationwide.

“AB5 was never designed or intended to be used in a joint employer analysis,” Lotito said.

He noted legislation introduced in politically progressive states, including New York and New Jersey, seek to similarly establish the ABC Test elsewhere.

“Illinois may well be next,” Lotito said. “Unions consider AB5 their greatest legislative victory in many years and want to use it elsewhere as part of corporate campaigns against companies.”

Should Democrats win control of the White House and Senate in 2020, Lotito said he would expect unions and their allies in Congress to move quickly to enact the ABC Test nationally, and expand upon it with “very union-friendly” language, designed to address the seeming conflict with joint employer questions.

“Progressives are aiding unions in achieving market share not only by making it easier to organize by, for example, enabling state law recognition, but also by combining different business entities into one to set up broad bargaining obligations,” Lotito said.

Most recently, however, the unions suffered another setback on the question of joint employer status, as the Ninth Circuit denied their request for a rehearing on the appeals’ court’s earlier decision.

The decision is binding in the federal courts within the Ninth Circuit, which includes the states of California, Oregon, Washington, Alaska, Nevada, Idaho, Arizona and Hawaii, but could be cited elsewhere in U.S. courts that may deal with similar joint employer questions.

 

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Organizations in this Story

National Labor Relations BoardState of CaliforniaMcDonald's CorporationLittler MendelsonSERVICE EMPLOYEES INTERNATIONAL UNION