Major labour reforms ahead after McDonald’s loses wage fight

Typically, one of the four million fast food workers in the US will receive between $7.50 and $9 an hour. When Nancy, a long-term full-time McDonald’s employee earning $8.25 an hour – which, with her two children, put her below the US poverty line – called the company’s McResources helpline in 2013, the operator suggested she visit food banks. “Are you on SNAP?” her corporate councillor asked. “It’s Supplemental Nutritional Assistance Programme, or food stamps.” With her two children, Nancy would “most likely be eligible for SNAP. It’s a federal programme”. It turned out the company’s official policy was to direct employees struggling to make ends meet to federal assistance programmes.

With a single line in an already bombastic ruling, the General Counsel of the National Labour Relations Board (NLRB) potentially changed the archaic nature of US labour relations – and the lives of workers such as Nancy – irrevocably. The US, for all its talk of freedom and modernity, has a shockingly unfair and outdated set of labour laws – or rather, a lack of appropriate legislation in the area. So when workers employed by McDonald’s franchises in low-skill low-wage jobs decided to hold the multinational behemoth accountable for their shockingly low pay, it seemed unlikely they would prevail. But, in a historic decision, they did, ushering in a new era for workers’ rights in the US.

The key phrase is ‘joint employer’: a term that applies to corporate entities and potentially links them to franchisees. If the decision is ratified, it would mean McDonald’s being held jointly responsible for matters of hiring, firing, wage disputes and benefits – potentially challenging its well-established franchise model. Today, up to 90 percent of the US’s 14,000 McDonald’s restaurants are franchises.

The company’s official policy was to direct employees struggling to make ends meet to federal assistance programmes

Though it primarily concerns franchise businesses, the decision is significant because labour rulings against large, extensively represented corporations such as McDonald’s are rare, and this one is nothing short of incendiary. The case was brought by a group of workers who believed McDonald’s should be held jointly responsible for the pay and well-being of employees hired by franchise holders. Unions in the US have long argued big corporations should be at the table when it comes to collective negotiations on pay. McDonald’s and co. have hidden behind the caveat that it is franchise holders who hire, and are therefore ultimately responsible for labour disputes and issues. Essentially, McDonald’s argued staff at its restaurants across the US were subcontracted by franchise holders.

Jointly responsible
Business groups, however, have been vocal in their opposition to the ruling. They are not wrong to fear it, as franchisors would suddenly be held liable for thousands of legal cases of overtime, wages and union-organising violations brought by their employees and subcontractors. Richard F Griffin Jr, the labour board’s general counsel, however, was adamant there was merit in 43 of the 181 claims brought before the NLRB, which accused McDonald’s of illegally firing, threatening and penalising workers for getting involved with labour unions, and other pro-labour activities. McDonald’s is likely to contest the decision.

The dispute between employees and fast food chains has been heated for some time, and the ruling by the NLRB added fuel to the fire. At the beginning of September, workers from McDonald’s, Burger King and other franchises in California, Missouri, Wisconsin and New York walked out in protest over low wages. The industrial action, coordinated by local union groups, coalitions and the pressure group Fast Food Forward, has been the biggest yet, and the ruling by the NLRB, though favourable for workers, has done little to assuage their anger. The campaign as a whole has been funded and backed by the Service Employees International Union.

“Employers like McDonald’s seek to avoid recognising the rights of their employees by claiming that they are not really their employer, despite exercising control over crucial aspects of the employment relationship,” Julius Getman, a labour law professor at the University of Texas, told The New York Times. “McDonald’s should no longer be able to hide behind its franchisees.”

The ruling referred specifically to 43 cases filed since November 2012, though 64 cases remain pending. It is now up to the plaintiffs and the defenders to settle. “The National Labour Relations Board Office of the General Counsel has investigated charges alleging McDonald’s franchisees and their franchisor, McDonald’s USA, violated the rights of employees as a result of activities surrounding employee protests,” said the NLRB statement that followed the ruling.

Liability and responsibility
McDonald’s case has always appeared rather flimsy. The very nature of a franchise is that individuals or small company can buy the right or license from a larger brand to market the larger company’s products or services in a specific space. The essence of McDonald’s business is to license nearly identical restaurants selling nearly identical burgers all over the world. To then suggest the only aspect of its business that is not centralised and rigorously monitored by McDonald’s is patently ludicrous. For a McDonald’s franchisee, everything from the uniforms and the training of their workers to the way frontline staff greet diners is meticulously set out by head office. Everything apart from their pay, that is, if McDonald’s had it their way.

“[The] decision of the NLRB is a vital step in reminding companies that they can’t hide behind labels or a franchise system to avoid complying with our labour laws,” wrote Sarah Belton, a lawyer with Public Justice, in The New York Times. “Our country is in the middle of a critical conversation about poverty, income inequality and the rights of workers to a living wage. Integral to this dialogue is today’s focus on the bottom line that often stresses cutting costs, like labour, in the hopes of raising profits.”

If Belton’s words appear far-fetched or overly dramatic, they are not. Fast Food Forward is campaigning for the minimum wage of employees to be raised to $15 an hour and that they should be allowed to join a union without fear of reprisals from employers. The wage increase would raise workers’ incomes above the poverty line but below the national average – hardly a grandiose demand from the workforce. According to the pressure group, McDonald’s own employee resources website suggested it would take $12.36 an hour net, roughly, to make ends meet. Fast Food Forward, however, claims the McDonald’s figure doesn’t factor in food, water and bills, and suggests workers would actually need two jobs to survive on that wage.

Even though McDonald’s seems to have been aware of the tragically low wages paid to its frontline workers, it has specifically chosen to hide behind the excuse that they are subcontracted by franchisees. “McDonald’s can try to hide behind its franchisees, but today’s determination by the NLRB shows there’s no two ways about it: the Golden Arches is an employer, plain and simple,” said Micah Wissinger, a lawyer who filed complaints on behalf of several McDonald’s employees in New York. “The reality is that McDonald’s requires franchisees to adhere to such regimented rules and regulations that there’s no doubt who’s really in charge.”

“Conceptually, this is a big step,” Catherine Fisk, a labour and workplace expert at UC Irvine law school, said of the NLRB counsel’s ruling to the Los Angeles Times. “It shows the general counsel is trying to adapt to the evolving nature of the restaurant business.” Though Fisk is sceptical about whether or not the ruling will lead to any change in terms of the unionisation of fast food workers, she pointed out that, more importantly, the ruling ensured that, if workers did organise, “they can at least bargain with someone who can do something”, i.e. the branded company in question.

“Allowing companies to game the system to prioritise profits comes with a cost,” wrote Belton. “American taxpayers spend over a billion dollars a year on public assistance to McDonald’s workers.”

Bad for small business
The NLRB decision is yet to be ratified, but, if it is, McDonald’s and other franchisors will be considered liable for matters of wages and benefits as a joint employer. If this standard is changed, the very nature of franchises in the US could be forced to change too, potentially jeopardising smaller businesses. If McDonald’s were forced to the negotiating table with unions over labour matters, it is likely it would pass on those costs to franchisees – often much smaller companies with proportionately smaller profit margins. And it is likely the ruling will affect franchises across a range of sectors beyond fast food.

Angelo Amador, Vice President for Labour and Work Force Policy for the National Restaurant Association, told The New York Times the decision was another example of the current administration’s quest to undermine small businesses. He said the ruling “overturns 30 years of established law regarding the franchise model in the United States, erodes the proven franchisor-franchisee relationship, and jeopardises the success of 90 percent of America’s restaurants who are independent operators or franchisees”. David French, Senior Vice President with the National Retail Federation, agrees, saying the decision confirmed the labour board was “just a government agency that serves as an adjunct for organised labour, which has fought for this decision for a number of years as a means to more easily unionise entire companies and industries”.

The reality is that McDonald’s requires franchisees to adhere to such regimented rules and regulations that there’s no doubt who’s really in charge

Another risk, detractors of the NLRB ruling are suggesting, is that, by being held accountable for labour and welfare, branded companies will back out of the traditional franchise model. “It’s a catastrophic event from a legal perspective,” Robert Cresanti, Executive Vice President of Government Relations and Public Policy at the Washington-based International Franchise Association told Business Insurance. “It shatters fundamental principles of privacy and control, and I think we’re going to have long-term repercussions from it.” There is a real danger, it seems, that this ruling will establish a precedent that will lead to franchisors becoming exposed to a number of liability issues that go beyond labour.

“This decision goes against decades of established law regarding the franchise model,” wrote Heather Smedstad, McDonald’s USA’s Senior Vice President of Human Resources, in a statement published on the company’s website. “McDonald’s does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees – which are the well-established criteria governing the definition of a ‘joint employer’.” She added McDonald’s, “as well as every other company involved in franchising, relies on these existing rules to run successful businesses as part of a system that every day creates significant employment, entrepreneurial and economic opportunities across the country”.

However, despite the cries of jubilation from labour unions and workers’ groups, – and grunts of dissatisfaction from businesses – the NLRB ruling is still a small step in what will undoubtedly be a long road to more egalitarian workers’ rights in the US. Regardless of the uproar in the business sector, the unionisation of workers is not necessarily such a scary thing. Better-paid, happier workers will have more time and money to spend consuming products they might not be able to afford if they continue to be paid unfairly low wages. The workforce should be treated with the respect and dignity that human beings deserve, because they are more than just the frontline workers at your local fast food joint: they are also its biggest customers.