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McDonald’s Ruling Could Open Door for Unions

The general counsel of the National Labor Relations Board ruled on Tuesday that McDonald's could be held jointly liable for labor and wage violations by its franchise operators — a decision that, if upheld, would disrupt longtime practices in the fast-food industry and ease the way for unionizing nationwide.

Business groups called the decision outrageous. Some legal experts described it as a far-reaching move that could signal the labor board's willingness to hold many other companies to the same standard of "joint employer," making businesses that use subcontractors or temp agencies at least partly liable in cases of overtime, wage or union-organizing violations.

The ruling comes after the labor board's legal team investigated myriad complaints that fast-food workers brought in the last 20 months, accusing McDonald's and its franchisees of unfair labor practices.

Fast food workers and activists demonstrate outside McDonald's downtown flagship restaurant on May 15, 2014 in Chicago, Illinois.
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Fast food workers and activists demonstrate outside McDonald's downtown flagship restaurant on May 15, 2014 in Chicago, Illinois.

Richard F. Griffin Jr., the labor board's general counsel, said he found merit in 43 of the 181 claims, accusing McDonald's restaurants of illegally firing, threatening or otherwise penalizing workers for their pro-labor activities.

In those cases, Mr. Griffin said he would include McDonald's as a joint employer, a classification that could hold the company responsible for actions taken at thousands of its restaurants. Roughly 90 percent of the chain's restaurants in the United States are franchise operations.

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The fast-food workers who filed cases asserted that McDonald's was a joint employer on the grounds that it orders its franchise owners to strictly follow its rules on food, cleanliness and employment practices and that McDonald's often owns the restaurants that franchisees use.

McDonald's said it would contest the decision, warning that the ruling would affect not only the fast-food industry but businesses like dry cleaners and car dealerships.

Heather Smedstad, a senior vice president for McDonald's, said the N.L.R.B.'s move was wrong because the company does not determine or help determine decisions on hiring, wages or other employment matters. "McDonald's also believes that this decision changes the rules for thousands of small businesses, and goes against decades of established law," she said.

Read More McDonald's, not only franchisees, liable in worker complaints: NLRB

Throughout the debate to increase the minimum wage to $10.10 an hour, as well as the campaign to pressure McDonald's and other restaurant chains to adopt a $15 wage floor, the companies have said that they do not set employee wages, that the franchise owners do. The N.L.R.B.'s decision would weaken that defense considerably.

Wilma Liebman, a former chairwoman of the National Labor Relations Board under President Obama and now an occasional consultant to unions, said the decision could give fast-food workers and labor unions leverage to get the company to negotiate about steps that would make it easier to organize McDonald's restaurants. Similarly, she said, the ruling could give the workers and unions more clout in pressing McDonald's to have its franchisees raise wages.

And in an era when companies increasingly use subcontractors and temp agencies to free themselves of employment decisions and headaches, experts said the ruling could force the companies to be more accountable.

"Employers like McDonald's seek to avoid recognizing the rights of their employees by claiming that they are not really their employer, despite exercising control over crucial aspects of the employment relationship," said Julius Getman, a labor law professor at the University of Texas. "McDonald's should no longer be able to hide behind its franchisees."

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The next phase will unfold before administrative law judges hearing the employees' claims. If the judges rule against McDonald's on the joint-employer finding and the labor violations claimed, the company is likely to appeal to the full five-member labor board in Washington. Given that McDonald's is arguing that the legal counsel's ruling goes against three decades of law, the case could ultimately wind up before the Supreme Court.

The cases filed with the N.L.R.B. grew out of the five one-day strikes demanding a $15 wage that fast-food workers conducted against McDonald's and other fast-food restaurants beginning in November 2012. Over 100 workers complained to the board, saying that they had been fired, had their hours cut or were otherwise punished for the protests.

In a statement, Angelo Amador, vice president for labor and work force policy for the National Restaurant Association, called the ruling another example of the Obama administration's agenda against small businesses. The decision, he said, "overturns 30 years of established law regarding the franchise model in the United States, erodes the proven franchisor-franchisee relationship, and jeopardizes the success of 90 percent of America's restaurants who are independent operators or franchisees."

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In 1982, a federal appeals court, echoing the labor board at the time, said that a company was to be considered a joint employer in situations where two or more employers exerted "significant control" over the same employees. In the years since, the board has adopted a narrower standard, holding that a company could be deemed a joint employer only when it directly controlled, for instance, a franchisee's or a temp agency's employment practices.

With the decision on Tuesday, Mr. Griffin appears to be embracing the earlier "significant control" standard.

In the current cases, the fast-food workers, backed by the Service Employees International Union, said that McDonald's had significant control over its franchisees' employment practices, noting that it supplies many with software telling them how many employees to use at any given hour. The workers pointed to an instance in which McDonald's even told a franchise owner that it was paying its employees too much. The average fast-food wage is about $8.90 an hour.

In a news release, the labor board said Mr. Griffin had dismissed 68 of the 181 cases filed.

Read More McDonald's: Regulator says it's a 'joint employer'

The board said he was still investigating 64, while his office found that 43 had merit. Mr. Griffin is expected to try to reach a settlement with McDonald's on those cases.

The Associated Press first reported the ruling on Tuesday.

David French, senior vice president with the National Retail Federation, said the decision confirmed the labor board was "just a government agency that serves as an adjunct for organized labor, which has fought for this decision for a number of years as a means to more easily unionize entire companies and industries."

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But lawyers for the workers asserted that considering McDonald's influence over its franchisees, the decision merely recognized reality.

"McDonald's can try to hide behind its franchisees, but today's determination by the N.L.R.B. 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."

—By Steven Greenhouse, The New York Times

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