McDonald’s Notches Big Victory in Labor Board Ruling

The federal labor board handed McDonald’s a major victory on Thursday, ordering a judge to approve a proposed settlement between the company and the government that the judge had previously rejected.

Had the case, which was initiated during the Obama administration, been litigated further, it could have made the franchise business model less profitable by putting many parent corporations on the hook for labor law violations by their franchisees.

But the National Labor Relations Board concluded that the settlement, which would pay roughly $20 to $50,000 each to more than a dozen workers, was “reasonable” and that it would advance the board’s longstanding approach of “encouraging the amicable resolution of disputes.” The board split two to one along partisan lines.

McDonald’s said in a statement that it was “pleased” that the decision brought an end to the case and that “current and former franchisee employees involved in the proceedings can now receive long overdue satisfaction of their claims.”

The union-backed worker group Fight for $15 and a Union, which workers in the case had joined as a way to demand higher pay and better working conditions, criticized the Republican board members and accused them of essentially doing McDonald’s bidding. “Despite an independent judge rejecting the bargain-basement settlement terms, the Trump administration took the side of McDonald’s Corporation over workers,” the group said in a statement.

The case stems from a labor dispute in 2012. Workers said they were disciplined and in some cases fired by McDonald’s franchises in cities across the country for participating in protests in which they demanded higher wages and a union.

The labor board’s general counsel at the time, who was appointed by Mr. Obama, investigated the charges and issued complaints against the company and its franchises in 2014. A trial began the following year.

A key issue in the case is whether McDonald’s should be considered a “joint employer” of workers employed by its franchisees, and therefore be liable for labor violations they commit and be required to bargain with franchise employees who unionize. Mr. Obama’s general counsel argued that this was the case.

In January 2018, Mr. Trump’s new appointee to the position, Peter B. Robb, received a 60-day stay in the case to negotiate a settlement with the company and its franchisees.

But in July of that year, the judge in the case, Lauren Esposito, rejected the settlement that the two sides had reached, saying it was not “a reasonable resolution based on the nature and scope of the violations alleged and the settlements’ limited remedial impact.”

Judge Esposito said that an acceptable settlement would have to at least “begin to approximate” the impact of a ruling against the company, and that the proposal did not even require McDonald’s to ensure that its franchisees followed through on the terms of the settlement.

The judge also criticized the company for its efforts to prolong the proceedings, suggesting it had tried to run out the clock on a Democratic administration in hopes that a Republican-appointed general counsel would be more sympathetic.

“From the moment the first witness took the stand in this case on March 14, 2016, the evidentiary issues raised by McDonald’s and the franchisee respondents have simply been extraordinary,” she wrote.

McDonald’s then appealed the decision to the labor board, which argued that Judge Esposito had held the proposed settlement to an overly strict standard since “all settlements entail compromise.”

By ordering approval of the deal, which does not establish McDonald’s as a joint employer, the labor board helped preserve the franchise model in its current form across multiple industries.

Matt Haller, a senior vice president at the International Franchise Association, praised the board’s “common-sense conclusion” in a statement and said it would “bring much-needed clarity to franchise businesses of all sizes.”

The board is expected to go further in the coming days, completing a proposed rule that narrows the definition of a joint employer. Under the standard set during the Obama era, a parent company can be considered a joint employer of workers employed by a franchisee or contractor even if it controls them only indirectly — for example, by requiring franchises to use software that locks in specific scheduling policies.

Under the standard the board is likely to adopt, a parent company will have to control employees of a franchise or contractor directly in order to be considered a joint employer.