WASHINGTON -- McDonald's, Burger King and every other company that relies on a franchise business model just suffered the legal setback they've been fearing for years.
The National Labor Relations Board ruled on Thursday that Browning Ferris Industries, a waste management company, qualifies as a "joint employer" alongside one of its subcontractors
That's a big deal. In the case of McDonald's, roughly 90 percent of its locations are actually run by franchisees, who are typically considered the workers' employers. One of the main reasons companies choose to franchise or to outsource work to staffing agencies is to shift workplace responsibilities onto someone else. But if a fast-food brand or a hotel chain can be deemed a "joint employer" along with the smaller company, it can be dragged into labor disputes and negotiations that it conveniently wouldn't have to worry about otherwise. In theory, such a precedent could even make it easier for workers to unionize as employees under the larger parent company.
The Democratic-majority board, whose members were appointed by President Barack Obama, ruled 3-2 along partisan lines, with the two Republicans dissenting.
In their decision, the Democratic members wrote that parent companies shouldn't be absolved of their obligations to workers at the bottom of the contracting chain.
"It is not the goal of joint-employer law to guarantee the freedom of employers to insulate themselves from their legal responsibility to workers, while maintaining control of the workplace," they wrote. "Such an approach has no basis in the [National Labor Relations] Act or in federal labor policy."
Labor unions and worker advocacy groups have been hoping for just such a decision. In their view, since companies like McDonald's influence the working conditions in their franchised stores, they should be legally accountable to the workers who wear their logos, even if it's a franchisee that's technically signing the paychecks. Bringing companies at the top of the contracting chain to the table will help restore corporate responsibility in a "fissured" economy, advocates say.
The franchise lobby, meanwhile, has been warning for months that a ruling like this one would doom the business model. Franchisers argue that naming parent companies as joint employers would force them to take more control from their franchisees to contend with new liabilities. The lobby has worked hard to paint the "joint employer" standard as something that will hurt small business owners, not fast-food giants and other name brands.
The negative reactions from the business community were swift. The National Restaurant Association, a leading lobby for the industry, issued a statement Thursday saying the ruling "is overturning years of established law that has worked to help grow business and feed our economy." The Competitive Enterprise Institute, a libertarian think tank, said the ruling would have a "devastating economic impact."
The Browning Ferris case grew out of an organizing effort by the Teamsters. The union sought to have the waste management company named as a joint employer for workers employed by the staffing firm Leadpoint Business Services, a subcontractor for Browning Ferris. If Browning Ferris were deemed a joint employer, it would have to join Leadpoint in bargaining with the Teamsters. Such a determination could also make it easier for the Teamsters to organize workers at other staffing agencies that do work for Browning Ferris.
A regional director for the NLRB ruled that Browning Ferris did not exert enough control over Leadpoint workers to be considered a joint employer under current standards, but the Teamsters appealed that ruling to the federal board. Thursday's ruling will change those standards for future cases.
The decision will no doubt agitate some powerful business lobbies and Republicans on Capitol Hill. The ruling will likely spur congressional Republicans to renew their calls to defund an independent agency they view as having been too friendly to labor unions in the Obama era.
McDonald's and other franchisers have been bracing for a ruling like this for years. The board's general counsel, who functions as a kind of prosecutor, has already named McDonald's as a joint employer alongside some of its franchisees in several cases involving alleged unfair labor practices. Many observers took that move as a sign that the board would soon revise its standards for what makes a company a joint employer.