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McDonald’s faces destruction of its business model under new labor rule

McDonald’s said a revision to employment law being considered by the National Labor Relations Board (NLRB) would destroy the franchise model it has operated on for decades.

The independent federal agency is considering broadening the definition of what counts as a “joint employer,” making it easier to hold umbrella corporations responsible in labor disputes and negotiations with trade unions.

The proposed revision was announced last September, and in July the NLRB said it was expecting to issue the final version by August. Financial news outlet Barron’s reported on Monday that the agency would not comment on the timing of the release, though industry insiders expected it to be soon.

While workers for McDonald’s have spoken out in favor of the move, the chain restaurant and trade bodies have panned the proposals.

“We are confident there will be bipartisan opposition to this rule,” Michael Layman, senior vice president of the International Franchise Association, told Barron’s, describing the new risk of liability it posed to franchisors as “a fundamental changing of the rules in the middle of the game.”

At present, 95 percent of McDonald’s restaurants in the U.S. are owned and operated by a local store owner, who buys into the franchise in exchange for a share of their store’s profits. While workers have to abide by corporate policies—such as on food preparation—day-to-day running of the restaurants is largely left to local management.

The proposed changes to labor laws would mean that franchisors would no longer be liable in disputes if it has “direct and immediate control” of working conditions, but would if there was “evidence of reserved and indirect control” over employees’ essential terms and conditions of employment.

“The proposed changes are designed to explicitly ground the joint-employer standard in established common-law agency principles,” the NLRB said when announcing the new policy last year.

While the proposal would make it easier for labor unions to hold umbrella companies accountable for labor law violations such as union-busting, instead of individual franchisees, McDonald’s said it would undermine a system that “has improved the lives of McDonald’s franchisees, the employees who work in their restaurants, and the local communities they serve.”

In a December letter to NLRB, Angela Steele, the company’s general counsel, wrote that “while McDonald’s provides access to the world’s premier restaurant operating system, local small business owners manage their restaurants and bear responsibility for their own employees.

“While declaring a franchisor and its franchisees to be joint employers might reduce some obstacles to unionization across large franchise systems, it would have the devastating consequence of destroying the franchise business model that powers the U.S. economy.”

However, a week after the letter was sent, Richard Eiker, a McDonald’s maintenance worker of 30 years and local labor group leader, wrote in favor of the proposed change.

“McDonald’s controls nearly every aspect of my job, from the required computer software that tracks our productivity to who we call when the ice cream machine breaks,” he told the NLRB. “Though McDonald’s corporate office controls so much of my everyday work, I am unable to hold them accountable for unjust working conditions like low wages and unfair labor practices because I work for a franchisee that exercises control over other aspects of my job, like my schedule.

“While working for McDonald’s, I’ve cycled through approximately six different franchise owners. Regardless of these ownership changes, my co-workers and I are expected to follow the same rules and maintain the same standards set by McDonald’s corporate, all while losing seniority and access to healthcare benefits with a new employer on our checks.

“If McDonald’s can control nearly every aspect of my job, they can and should be held responsible for the maintenance of my benefits and working conditions.”

An NLRB spokesperson declined to comment, but pointed Newsweek to a motion filed on Friday, which read: “The Board received about 13,000 comments in response to its proposed rule regarding the standard for determining whether two employers are a joint employer under the National Labor Relations Act.

“The Board remains in the process of reviewing those voluminous comments and drafting a final rule. The Board presently anticipates that the final rule will issue by the end of October 2023.”

Newsweek reached out to McDonald’s via email for comment on Monday.

Update 10/06/23, 3:00 a.m. ET: This article was updated to include a response from an NLRB spokesperson.

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