Restaurant Group Criticizes NLRB Ruling

Last Thursday’s ruling by the National Labor Relations Board (NLRB) that a company is a “joint employer” along with its contractors has caused a storm of concern in at least one industry that is heavily populated with franchisors and franchisees. The industry, of course, is the restaurant business, and to say the industry is concerned is perhaps too mild.

A National Restaurant Association (NRA) executive made the industry’s position quite clear:

While we continue to review the NLRB’s ruling, it appears that once again the Board is stacking the deck against small businesses. The Board is overturning years of established law that has worked to help grow business and feed our economy. The NLRB is already using its new rationale to dismantle the franchisor-franchisee model, which would stifle entrepreneurship and obstruct small businesses’ ability to continue to create jobs in an increasingly challenging economic and regulatory environment.

The NLRB’s decision was issued in a case involving waste-management company Browning-Ferris and one of its subcontractors. But as the NRA’s statement indicates, restaurateurs see the ruling as the first step down a slippery slope that could radically change, if not end, the franchise model.

Charles Internicola, a business and franchise attorney, said:

The NLRB decision is predicated upon a finding that both franchisor and franchisee are to be treated as one and the same when it comes to certain employment matters within the scope of the NLRB’s jurisdiction. So at the very least—when it comes to labor issues within the NLRB’s jurisdiction—the NLRB has, essentially, cast aside distinctions between franchisor and franchisee, the contractual nature of the franchisor/franchisee relationship and decades of court decisions regarding issues of contract law.

The NLRB ruling may give unions more leeway to organize and bargain for better wages and benefits by negotiating directly with companies rather than individual stores.

The headline case to watch is what happens with McDonald’s Corp. (NYSE: MCD), which announced in April that it will raise pay for about 90,000 employees of the company’s 1,500 company-owned stores. It does not include the roughly 650,000 or so employees of franchise operators. If the NLRB were to extend its recent ruling to cover franchising, would McDonald’s franchisees be forced to raise their employees’ pay? Would the franchisee have to pay or would McDonald’s? What impact would any decision on who pays have on McDonald’s? What does all that mean for shareholders?

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