Lovin It (Or Not) - McDonald's and the NLRB

The National Labor Relations Board (NLRB) announced on July 29, 2014 that its Office of General Counsel (OGC) authorized the filing of administrative complaints against franchise giant, McDonald’s USA LLC, for unfair labor practices involving workers at franchisee-owned restaurants.

The OGC said that it had investigated 181 cases of unlawful labor practices at McDonald’s franchise restaurants since 2012 and found sufficient merit in at least 43 cases to name McDonald’s as the workers’ “joint employer” creating a legal basis for holding McDonald’s responsible with the franchise owners for the labor violations.  The OGC's findings were made in the form of an Advice Memo supporting the OGC's legal theory. Since this is a matter of ongoing litigation, disclosure of the Advice Memo will not be made at this time.

The NLRB's rationale is likely found in the new “joint employer” test that it is pressing for in Browning-Ferris Industries of California, Inc., a non-franchise case. In its amicus brief, the OGC urges the NLRB to replace the current “joint employer” standard, which examines a company’s direct control over another company’s essential employment decisions specifically affecting hiring, firing, supervision and direction of employment, with the pre-1984 broader-based “industrial realities” test, which focuses on the “economic dependence” between two companies and assumes that a company effectively controls another company’s labor decisions if it dictates standards for every other variable of its business.

McDonald's HR Practices

Heather Smedstad, senior vice president, human resources, of McDonald’s USA, said in a statement that “this decision to allow unfair labor practice complaints to allege that McDonald’s is a joint employer with its franchisees is wrong. McDonald’s will contest this allegation in the appropriate forum.” In the statement, Ms. Smedstad also says that "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 ..."

Ms. Smedstad's statement that McDonald's does not determine or help determine decisions on employment matters appears at odds with her executive bio on the McDonald's website which reads, in part, that "she has lead responsibility for ... execution of all areas of HR for McDonald’s U.S. business and its 14,000 restaurants." (emphasis added) Assuming the accuracy of Ms. Smedstad's bio, McDonald's appears to play a role in employment matters at franchisees, since 90% of those 14,000 restaurants are franchisee-owned.

McDonald's: Hiring Gatekeeper

The process of applying for an hourly job at a McDonald's franchisee requires the applicant to use the application process found on the McDonald's corporate website.  In addition to providing personal information, applicants are required to complete an online assessment. The assessment goes beyond testing skills and evaluating knowledge, and assesses cultural fit, behavior, and potential.

Applicants are required to choose between pairs of statements, including:

• I am usually a very stable person
• I often am not sure why I fell the way I do about certain things
• I am pretty good at understanding what other people are thinking
• If something very bad happens, it takes time before I'm happy again
• I am sometimes not in touch with my feelings
• Most of the time I am not interested in other people's problems
• I prefer to avoid difficult tasks, in case I end up making mistakes
• When I think about the future, I get worried because I know how difficult life can be
• Sometimes I find it hard to sympathize with others' feelings
• I do not like the idea of change, I like things the way they are
• I have certain ways of doing things which I do not like to change
• I am very disorganized, but it works for me
• New experiences often do not turn out well so I like to do what I already like
• I smile more often than not
• I get frustrated doing things in groups because most people are hard to get along with
• I am not very assertive because I do not want to upset anyone

In most instances, the first time the franchisee is aware of the applicant's interest in a job, the applicant has already had several employment-related actions with McDonald's. The franchisee is made aware of the applicant's interest by a report that not only contains personal information supplied by the applicant, but also the results of the assessment - including a dashboard of predictors, tagging the candidate as qualified or not qualified.

McDonald's active and ongoing control of the applicant intake and assessment portions of the hiring process for the franchisees contrasts sharply with its public claims. It is also at odds with advice being provided by labor and employment lawyers who represent employers. Rochelle Spandorf of Davis, Wright Tremaine, writes, "[T]he best advice for franchisors at the moment is to completely distance all operating advice from anything that could remotely be interpreted as suggesting or recommending particular employment practices." Similarly, John T. Lovett of Frost, Brown, Todd writes, "The more influence a franchisor has over the employment practices of the franchisee, the greater the likelihood that the franchisor will be found to be a "joint employer" with the franchisee."