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McDonald's: Regulator says it's a 'joint employer'

Published: Tuesday, July 29, 2014 3:57 p.m. CDT
Caption
(AP Photo/Seth Perlman)
FILE - This Oct. 17, 2011 file photo, cars move through the drive-thru window at a McDonald's in Springfield, Ill. McDonald's Corp. on Tuesday, July 29, 2014 said it has been notified by the National Labor Relations Board that it can be named a ějoint employerî for workers in its franchisee-owned restaurants.

NEW YORK (AP) — McDonald's says it has been notified by a labor regulator that it can be named a "joint employer" for workers in its franchisee-owned restaurants.

The decision by the National Labor Relations Board was being closely watched because it could potentially expose McDonald's to liability for the working conditions and practices in its franchisees' stores. It also puts pressure on the world's biggest hamburger chain at a time when protests for higher wages in the fast-food industry have captured national attention.

McDonald's and other fast-food companies have repeatedly said they are not responsible for determining wages and other terms at their franchised locations.

In the U.S., the vast majority of McDonald's more than 14,000 restaurants are owned and operated by franchisees. The same is true for many other companies, including Burger King Worldwide Inc. and Yum Brands, which owns KFC, Taco Bell and Pizza Hut. The companies make money by collecting royalty and sales fees from franchisees.

Labor organizers say McDonald's should be held accountable as a joint employer because the company has so much control in setting the terms of operations even at its franchised locations, such as what menus, supplies, uniforms and training materials are used. The matter has come under the spotlight as fast-food worker groups backed by the Service Employees International Union have agitated for pay of $15 an hour and the right to unionize since late 2012.

Representatives for the National Labor Relations Board and the fast-food workers group weren't immediately available for comment.

In March, lawsuits seeking class-action status against McDonald's and its franchisees were filed in three states, saying they engage in a variety of illegal practices to avoid paying workers what they're owed. The suits detail a range of labor violations, including the denial of rest breaks and the use of company software that monitors the ratio of labor costs as a percentage of sales at its restaurants. When that ratio climbs above a target, workers were forced to wait around before they could clock in, according to the suits.

McDonald's, based in Oak Brook, Illinois, has said it would investigate the claims.

Heather Smedstad, senior vice president of human resources for McDonald's USA, says the company was notified by the National Labor Relations Board's regional office in New York about the decision on Tuesday. She said McDonald's plans to contest the decision and that it doesn't direct the hiring, termination, wages or hours for workers at franchised locations.

She said McDonald's has never been determined to be a joint employer in the past.

"This is such a radical departure that it should be a concern to business men and women across the country," Smedstad said.

The International Franchise Association, which represents franchisees, has also opposed the identification of McDonald's as a joint employer. The group also recently filed a lawsuit in Seattle challenging whether fast-food and other franchisees should be treated like large employers, thus subjecting them to a new $15 minimum wage at an earlier date than smaller businesses.

"If franchisors are joint employers with their franchisees, these thousands of small business owners would lose control of the operations and equity they worked so hard to build," the International Franchise Association said in a statement.

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Follow Candice Choi at www.twitter.com/candicechoi

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