Federal Labor Board Reverses Bad Decision that Made Corporations Responsible for Franchise Decisions

Union influence (and the pursuit of deep pockets) temporarily overruled economic literacy and common sense.


Tea / Dreamstime

Some good news from the National Labor Relations Board: They've reversed a ruling that could have held large chains responsible for the labor practices of its franchises.

Prior to 2015, big corporations (like McDonald's, in this case) would be held responsible as employers during labor disputes or for labor law violations involving franchised locations, but only to the extent that they exercised corporate control over the decisions. If an individual franchise operator was violating labor law on his or her own—by paying less than the local minimum wage, for example—he or she would be the one held accountable, not corporate HQ.

A 2015 decision altered these terms, holding McDonald's potentially responsible for labor complaints filed by employees at individual franchises. McDonald's insisted that it played no corporate role in the hiring and pay decisions that had prompted the complaints.

In a party-line vote yesterday, the board overturned that decision and restored the previous understanding of the relationship between corporations and franchises or contractors.

Overturning this decision doesn't mean that franchised businesses cannot be held accountable for labor violations. It merely means that the punishment for misconduct falls where the misconduct happens.

When the ruling was originally announced in 2015, I speculated that this change was being pushed partly because business franchises tend to operate on fairly thin profit margins and there was a limit to how much money could be wrung out of an individual restaurant or convenience store. A big corporation offered a bigger payday, even if that corporation wasn't responsible for these violations.

Some labor observers also suggested that this was meant to make it easier for unions to organize workers. Why go through the effort of all these piecemeal franchise fights when you can consolidate it all in one big go at the corporation? And again, much more could be demanded of McDonald's, the corporation, than some guy who owns five individual restaurants in Iowa.

I wondered in 2015 whether the decision could lead to greater automation of the fast food industry. McDonald's is indeed introducing more self-service kiosks in stores to serve customers, but I suspect the 2015 ruling probably played less of a role than recent hikes in the minimum wage.

Nevertheless, the 2015 ruling was a bad one—a blatantly political move that violated the logic of both economics and legal liability. Tossing it out was the right thing to do.

NEXT: Lack of Net Neutrality Can't Stop the FCC's 'Harlem Shake' Video, But Copyright Law Might!

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Jesus, Scott. That fucking alt-text. Get off /v/ for twenty minutes man.

    1. Pretty sure it’s a normie meme by now.

  2. A reappearing Libertarian viewpoint is that corporations are discriminated against. Corporations should never have been fabricated. They are an alias that evades paying debts. They create the filthy rich.

    1. Yeah right, so justice demands those responsible for employee violations should NOT be held responsible if we can find someone, anyone, with deeper pockets?

    2. Leftist twaddle. Corporations are nothing more than limited liability partnerships. The GOVERNMENT may hand them all sorts of additional tax advantages, but that’s the fault of the government not the concept of the corporation.

      1. No, no, no, by all means, let’s go back to unlimited liability. Combine that with Litigation-a-Rama, and technology will start advancing backwards.

  3. With this and Net Neutrality and the Keystone Pipeline and….

    Please tell me how Hillary would have been better than Trump. I didn’t vote for either, but Trump is doing more to reverse / correct those horrible government overreaches then I ever expected.

    1. Please tell me how Hillary would have been better than Trump

      Do you think this is

      1. How about

        1. Needs more diva cup coverage.

      2. I see that nerd Suderman’s name a lot, so yes.

    2. Yeah, at this point I have to say Trump is better than Hillary for many of the things important to Libertarians.

      1. Life, unfortunately, will go on beyond 2017.

      2. The unmistakable sound of Michael Hihn shrieking echoes in the distance

    3. It’s not Trump, it’s the people Trump picked. And NOT everyone he’s picked, as he’s picked some pretty bad actors in his brief year in office. Makes you wonder how much better it could have been with one of the other Republican contenders in office.

      1. I wonder if part of the good picks and the bad picks is Trump picking relatively outside the box. So it’s extreme in some direction, both good and bad.

        So maybe you’d just have more average appointments from a standard president.

      2. Would Rand Paul call for a filibuster of his nominee for head of the CFPB in protest that the agency still exists?

  4. In a party-line vote yesterday, the board overturned that decision and restored the previous understanding of the relationship between corporations and franchises or contractors.


    1. It was the friggin’ Libertarians.

  5. I remember reading about the McDonald’s case back when it was starting and I never heard about the deep pockets issue, it was always just about the effort to unionize fast food workers. What puzzled me was why, when the NLRB ruled that all McDonald’s could be treated as a single entity, the UAW didn’t immediately jump in there and claim anybody who worked for a Ford or GM dealership was now a member of the UAW and all auto dealerships were now union shops.

  6. Franchisees represent the franchisor, or so that’s what I learned in school. If the franchisee represents the name and the reputation of the corporation, the corporation should vet their franchisees better. The 2015 position sounds like the right decision. This recent one is the wrong one.

    If I go to McDonald’s in Iowa, I expect to be treated exactly the same as a McDonald’s in Michigan or Vermont. So, if I’m treated improperly, whether as an employee, customer, supplier, etc., I am going to blame McDonald’s, not John Q Investments, LLC. I personally think the rule should be that the person wronged should sue the corporation and then if the corporation loses the court battle, they can then either sue the franchisee and take their business from them or exercise something similar to a due on clause in the contract by inserting that language in the franchise agreement prior to franchising.

    1. McDonald’s can provide guidance and training. They cannot micromanage thousands of locations nor can they hire employees for them. Their places suck but I don’t McD’s for that. Their food is already known to be bad. The employees ain’t on them.

    2. Franchisors do not own the franchisees, hence there is no control over them and no liability. Now reputations may be sullied by bad franchisees, but again, there’s no control therefor no liability…

  7. He’s made enough good decisions in terms of staffing to make a vote for Trump in 2020 easy.

Please to post comments

Comments are closed.