{"id":23728,"date":"2023-10-02T10:43:57","date_gmt":"2023-10-02T10:43:57","guid":{"rendered":"https:\/\/microloannexus.com\/investing\/mcdonalds-and-other-franchisors-face-a-new-rule-that-could-spell-trouble\/"},"modified":"2023-10-02T10:43:58","modified_gmt":"2023-10-02T10:43:58","slug":"mcdonalds-and-other-franchisors-face-a-new-rule-that-could-spell-trouble","status":"publish","type":"post","link":"https:\/\/microloannexus.com\/?p=23728","title":{"rendered":"McDonald&#8217;s and Other Franchisors Face a New Rule That Could Spell Trouble"},"content":{"rendered":"<p>More than 800,000 people work at a<br \/>\n        McDonald\u2019s<br \/>\n       restaurant in the U.S. But the question of who works <em>for <\/em>McDonald\u2019s is a thornier one. Today, about 95% of the restaurants bearing the Golden Arches are franchises. And McDonald\u2019s Corp. is quick to say that the workers flipping burgers, running registers, and mopping floors at those restaurants are employed by the franchisees, not the company headquartered in Chicago\u2019s West Loop.\u00a0<\/p>\n<p>To McDonald\u2019s (ticker: MCD), this distinction is vital\u2014and under imminent threat.<\/p>\n<div>\n<p>The National Labor Relations Board is preparing to issue a highly anticipated, and in some circles, highly controversial new rule expanding the definition of \u201cjoint employer,\u201d or when a company is considered to hold a joint responsibility for another businesses\u2019 employees. The proposed NLRB rule would make it easier to hold franchisors liable in labor disputes and bring them to the bargaining table with unions. The same goes for businesses that use contractors or subcontractors and temporary staffing services. That has important implications for franchise-heavy industries like fast food and hotels, as well as sectors like logistics, construction, and even big tech.\u00a0\u00a0<\/p>\n<p>The revised rule was unveiled more than a year ago, and in July the NLRB estimated that it would be released in final form by August. An agency spokesperson didn\u2019t comment on the revised timing, but labor experts expect it to be published soon.\u00a0<\/p>\n<p>A key factor in evaluating whether a business is a joint employer is determining which company or companies control the essential working conditions. Under the current, narrower rule, the threshold is whether a business has \u201cdirect and immediate control\u201d of those conditions; the proposal says evidence of indirect control could also suffice. In the case of McDonald\u2019s, franchisees must follow corporate-set rules for how food is prepared and customers are served, among other things. Unions leaders and others have argued that franchisors\u2019 strict operating standards, and their systems for monitoring sales transactions and stores, are forms of control that can also affect workers\u2019 employment conditions. In the past, such arguments have usually failed, but it\u2019s possible that would change under the new rule.<\/p>\n<p>For unions and other labor groups, the revised joint-employer proposal is a much-needed corrective that would make it easier to hold big corporations responsible for labor law violations, like threatening or retaliating against workers for supporting a union.<\/p>\n<p>But for McDonald\u2019s\u2014one of the biggest franchise companies in the world\u2014and others whose business model depends on franchising, the rule has the potential to be, at the least, a very expensive problem. McDonald\u2019s has said in comments to the NLRB that the proposal threatens to \u201cdestroy the franchise model\u201d and the agreement at its core: Franchisees get access to the \u201cworld\u2019s premier\u201d restaurant operating system, and in exchange they pay fees to McDonald\u2019s, make capital investments, and agree to take on liability, including for employment matters. Franchisees hire, assign job positions, determine employee pay, supervise staff and are \u201cthus the exclusive employers of their employees with responsibility for employment law violations,\u201d McDonald\u2019s says. The company also points out that it \u201chas never been found to be a joint employer with any franchisee under any state or federal law in over 70 years.\u201d When asked for comment on the impending rule change, McDonald\u2019s referred <em>Barron\u2019s<\/em> to its public comments to the NLRB.<\/p>\n<p>A franchise trade group is already at work on lobbying efforts to overturn the rule through Congress and plans to<strong>\u00a0<\/strong>challenge it in court.<\/p>\n<p>\u201cWe are confident there will be bipartisan opposition to this rule,\u201d says Michael Layman, senior vice president for government relations and public affairs at the International Franchise Association. To add a new liability risk to franchisors, Layman says, is \u201ca fundamental changing of the rules in the middle of the game.\u201d\u00a0<\/p>\n<p>The proposed rule, which could go into effect imminently, raises urgent questions for workers, the industry, and investors in McDonald\u2019s and other franchise businesses. Will the effort to block the rule be successful, and if not, how will the repercussions play out? And are the industry\u2019s dire declarations about the impact of the change overblown, or could this rule change actually become an existential threat to the franchise model?\u00a0<\/p>\n<p>The current upheaval over the NLRB proposed<strong>\u00a0<\/strong>rule is just the latest in a long push-pull over the responsibilities of franchisors, led by whichever party currently holds the White House and with it, the power to appoint a majority of the agency\u2019s five-member board. Under the National Labor Relations Act, the NLRB investigates and hears cases on workers\u2019 rights to organize in a union, or take part in activities like protesting work conditions, even if they\u2019re not in a union.  <\/p>\n<p>In the Obama years, the NLRB moved to make it easier for a company to be considered a joint employer. In 2014, the agency\u2019s general counsel brought a case alleging unfair labor practices against McDonald\u2019s franchisees and attempted to hold the company responsible as a joint employer, and the following year, a separate case known as <em>Browning-Ferris<\/em> broadened the joint-employer standard. That momentum reversed during the Trump administration. The McDonald\u2019s case settled in 2019 with no finding that the company was a joint employer, and in 2020 the agency issued a rule defining the standard on narrower terms, much to the relief of the franchise industry.<\/p>\n<p>Now the pendulum is set to swing again, this time under President Biden. The expected change didn\u2019t shock labor watchers, given that Biden has previously said he intends to lead \u201cthe most pro-union administration in American history,\u201d a theme illustrated during the United Auto Workers strikes, when he joined a picket line with striking workers.\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n<p>McDonald\u2019s and other franchise companies have made it clear they believe the stakes are high. The \u201creality is that our business model is under attack,\u201d CEO Chris Kempczinski said of possible joint-employer regulations in a speech at a franchising industry conference in Las Vegas earlier this year, in remarks he also published on LinkedIn. Changes by the NLRB, he said, would transform franchisees \u201cfrom independent small-business owners to employees of the parent brands.\u201d\u00a0\u00a0<\/p>\n<p>Heightened joint-employer liability could hurt the franchise model in two main ways, according to the International Franchise Association. One possibility, along the lines of what Kempczinski described, is that a franchisor would exert more control over the franchisees. That undercuts one of franchisors\u2019 big selling points to potential franchisees\u2014that they\u2019re offering a path to running their own business, with all of the freedoms that provides. It could also add compliance costs, and potentially, legal and liability expenses.\u00a0<\/p>\n<p>Those increased costs are also a frequent worry for franchisees, says restaurant consultant John Gordon, principal at Pacific Management Consulting Group. Franchisees typically pay franchisors a percentage of their sales, and their profit comes after those fees and their operating expenses. Franchisees are \u201cjustifiably afraid of the franchisor passing costs onto them that weren\u2019t part of the franchise agreement,\u201d he says, and wary of joint-employer liability for that reason.<\/p>\n<p>Still, some legal experts say the proposal isn\u2019t as dire for franchising as some in the industry would portend. The question of joint-employer status would still be determined on a case-by-case basis. \u201cThe rule is important, and in close cases it\u2019s going to make a real difference,\u201d says Jeffrey Hirsch, a law professor at the University of North Carolina. \u201cBut it\u2019s not going to make as big a difference as a lot of the actors involved are saying.\u201d<\/p>\n<p>What\u2019s more, the NLRB\u2019s rule making applies only to the area of law it oversees on unions and worker organizing, and not to other types of joint-employer liability for issues such as harassment and discrimination\u2014though it is possible that a shift in NLRB rulings could, over time, start to influence other areas of law.\u00a0\u00a0\u00a0<\/p>\n<p>Another possible outcome of a revised NLRB rule is that a franchisor would offer fewer support services to its franchisees, to try to reduce the risk it could be viewed as a joint employer. An economic analysis commissioned by the International Franchise Association found that this so-called \u201cdistancing\u201d behavior led to lost sales and increased costs for franchisees after the NLRB broadened the joint employer standard in its 2015 <em>Browning-Ferris <\/em>decision. Measured as lost potential output, the analysis estimated the cost to the sector of that broader standard to be between $17.2 billion and $33.3 billion a year when it was in effect.\u00a0\u00a0\u00a0\u00a0<\/p>\n<p>A September survey on joint employer released by the IFA found franchisees were troubled by both scenarios: 74% said they had a high level of concern about franchisors exercising more day-to-day control of their operations, and 55% expressed high concern about reduced support for services like training and technical guidance.\u00a0<\/p>\n<p>The issue isn\u2019t just being battled at the federal level. McDonald\u2019s recently averted potential regulations on joint liability in California, when a coalition of restaurant brands and trade groups agreed to a legislative compromise with the Service Employees International Union, the longtime supporter of the Fight for $15 movement. The industry agreed to raise fast food wages to $20 an hour starting in April 2024, but managed to eliminate the joint-employer provisions from the pending bill. The revised bill was signed into law Thursday.\u00a0\u00a0<\/p>\n<p>McDonald\u2019s tells <em>Barron\u2019s<\/em> the company \u201cstood up a dedicated team of staff and franchisees\u201d to work on an action plan in response to the legislation, but did not comment directly on the removal of the joint-employer provisions.<\/p>\n<p>Brands are relying on support from franchisees as they plan to counter the NLRB rule. The International Franchise Association is pursuing a strategy to get the rule nixed by a Congressional Review Act resolution. The law allows Congress to overturn an agency rule though a simple majority vote in both chambers, and Layman says the IFA believes it will be able to muster the bipartisan support needed to pass the resolution.<em>\u00a0<\/em>That said, it could still be blocked by a presidential veto, and there\u2019s little reason to believe Biden wouldn\u2019t use that power. <strong>\u00a0<\/strong><\/p>\n<p>In the meantime, a court challenge is likely once the public gets to see the final version of the rule. Says Layman: \u201cIt\u2019s going to be incumbent on business organizations like the IFA to stick up for our members and challenge this unworkable rule in court.\u201d<\/p>\n<p>Write to Catherine Dunn at catherine.dunn@dowjones.com<\/p>\n<\/p><\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/articles\/mcdonalds-franchise-joint-employer-rule-93bf8fc0?mod=investing\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>More than 800,000 people work at a McDonald\u2019s restaurant in the U.S. But the question of who works for McDonald\u2019s is a thornier one. Today, about 95% of the restaurants bearing the Golden Arches are franchises. And McDonald\u2019s Corp. is quick to say that the workers flipping burgers, running registers, and mopping floors at those<\/p>\n","protected":false},"author":1,"featured_media":23729,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[],"class_list":{"0":"post-23728","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.12 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>McDonald&#039;s and Other Franchisors Face a New Rule That Could Spell Trouble | Micro Loan Nexus<\/title>\n<meta name=\"description\" content=\"More than 800,000 people work at a McDonald\u2019s restaurant in the U.S. But the question of who works for McDonald\u2019s is a thornier one. 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