A recent decision by the National Labor Relations Board (NLRB) may significantly impact the legal liability of franchisors for franchisee wage and hour violations, a move that could spell trouble for many well-known American companies.
Typically, franchisors avoid wage and hour claims by asserting the franchisees are the “real” employers. In response to claims made by workers at various McDonald’s restaurants, however, the NLRB Office of the General Counsel issued instructions to its regional offices to treat McDonald’s as a “co-employer” along with its individual franchisees. As reported by CBS News, more than 43 claims of wage and hour violations have been lodged against McDonald’s in Michigan, New York, and Florida since 2012, and in May 2014, McDonald’s employees filed seven federal lawsuits in California, Michigan and New York alleging that that were not paid for overtime, were not reimbursed for purchasing and cleaning uniforms, and were forced to work off the clock.
McDonald’s, like most restaurant franchisors, controls almost all aspects of employment at a franchisee’s restaurant. It dictates the uniforms employees must wear, the wages employees are paid, where restaurants must purchase food and supplies, store hours, store design, and menu prices. In many instances, the company owns the property on which the restaurant is located and closely monitors the franchisee’s operations. The franchise owner (who pays a fee to the franchisor) has little say in how the business is run.
Because of the significant level of control McDonald’s exercises over its franchisees, the NLRB held the company and other franchisors can no longer claim they are not employers to escape liability for workplace issues and unlawful withholding of wages and overtime pay.
This recent ruling could substantially impact many franchise relationships, and workers at such establishments may have more leverage to press their demands for higher pay and other rights. On the other hand, franchisors may take back all control and change their long established business model. While the end result of this ruling is not yet clear, the NRLB decision opens up a new avenue for potential recovery for violations of state and federal employment laws.
The attorneys in Sommers Schwartz’s Wage and Hour Litigation Group have represented tens of thousands of workers in class actions concerning unpaid wages and overtime. If you work for a franchise operation or other employer and suspect that your rights have been violated, call us today for a free consultation.