New McDonald's Lawsuit Could Redefine Franchising as We Know It

A worker group is filing charges against franchisees and McDonald's as a joint employer, setting a precedent that could have broad ripple effects.

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By Kate Taylor • Jul 21, 2014

Opinions expressed by Entrepreneur contributors are their own.

A new lawsuit against McDonald's could force the franchise model to change not only for the burger chain, but for the entire industry.

A worker group filed charges against McDonald's locations in New York for allegedly terminating employees due to their union involvement and organizing activities, reports Bloomberg. However, unlike most franchise employment lawsuits, the workers have included both McDonald's franchisees and franchisor as the joint employer.

Traditionally, employment issues are purely the responsibility of franchisees. Franchisees hire and fire employees as well as determine pay rates, benefits and schedules. Franchisors focus instead on brand standards, training and advertisement. If McDonald's is seen as a joint employer by the National Labor Relations Board (NLRB), the consequences could disrupt the current model of franchising.

Steve Caldeira, president of the International Franchise Association, says that treating restaurant owners and their parent corporation as one entity would reduce franchisees' independence and raise costs for franchisors.

Related: Why Entrepreneurs Are Jumping on the Drinkable Meal Bandwagon

"Entrepreneurs are drawn to franchising because it is a proven, time-tested business model," wrote International Franchise Association president Steve Caldeira in an op-ed about the suit in The Hill published earlier this month. "But if control is taken away from these small-business risk takers who invest their own financial resources, fewer new businesses of this kind will be started."

The proper roles of franchisor and franchisee have been hot topics in recent months. Franchisors have been under fire in the minimum wage debate. While companies such as McDonald's insist that it is franchisees' responsibilities to control workers' wages, minimum wage activists have criticized chains for low wages and CEOs for their multi-million dollar salaries. Meanwhile, other franchisees have argued that franchisors, including 7-Eleven, have become overinvolved in franchisees' businesses, treating them as employees and not independent contractors.

With pressure from both workers and franchisees, the franchisor-franchisee relationship that allows the franchising industry to flourish is showing its seams. If the National Labor Relations Board finds McDonald's to be jointly liable as an employer of restaurants' workers, this adjustment in franchisors' duties would have far-reaching reverberations across the industry.

Related: Franchisees in Puerto Rico Claim McDonald's Broke FTC Rule

Kate Taylor

Reporter

Kate Taylor is a reporter at Business Insider. She was previously a reporter at Entrepreneur. Get in touch with tips and feedback on Twitter at @Kate_H_Taylor. 

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