A National Labor Relations Board administrative law judge rejected as insufficient a proposed settlement in a controversial, closely-watched case the board brought against McDonald’s Corporation. The rejection leaves in limbo a case that sought to vastly expand corporate legal liability, especially for the ones that franchise their brand.
Administrative Law Judge Lauren Esposito said Tuesday the proposed settlement was “virtually guarantee[d]” not to resolve litigation in the case, which involves whether the corporation is a “joint employer” with its franchisees and therefore legally liable for any workplace law violations at them. McDonald’s Corporation argues that the franchisees are independent businesses that merely rent out its brand and it doesn’t have control over their policies.
[Previous coverage: McDonald’s settles labor case with NLRB]
The case was initially brought by the NLRB, the federal government’s main labor law enforcement agency, in 2014 when it had a Democratic majority. The case was sparked by complaints made by Fight for $15, a nonprofit activist group founded and run by the Service Employees International Union, which has long sought to organize workers at fast food chains. The board argued that the corporation was responsible for the firing by local restaurants of workers involved the SEIU’s efforts.
The NLRB’s move was a potentially major expansion of the joint employer doctrine. For decades, the doctrine required one company to have direct control over another business’ policies, but the board attempted to change that to the much vaguer “indirect control.” That standard could potentially make a corporation liable for anyone it franchises its brand to. Business groups loudly opposed the move and lobbied Congress and the White House to reverse it.
The NLRB, which now has a Republican majority, has sought to pull back on the question. In December, it issued a ruling in a case called Hy-Brand that re-established the prior “direct control” standard. However the board abruptly vacated the Hy-Brand ruling earlier this year when an internal probe determined that one of its board members, William Emanuel, should have recused himself due to a conflict of interest involving his previous employer, the law firm Littler Mendelson. Emanuel has disputed that any conflict existed, calling the Office of the Inspector General report that found one an “absurd” reading of the law since Littler Mendelson did not represent anyone in the Hy-Brand case. It instead represented a client in an earlier case that the Hy-Brand ruling would have affected.
The upshot has been that the Obama-era precedent of indirect control is still technically in effect. The board will likely not be enforcing it, but it can still be cited in private sector class-actions. The board began the process to formally re-write the rule in May.
“A 44 page decision only highlights the ongoing uncertainty that exists for all franchise owners and the broader business community with respect to the joint employer issue,” Matt Haller, senior vice president for government relations at the International Franchise Association, said of Tuesday’s decision. “All of this uncertainty could be solved and avoided if the Senate passed the bipartisan Save Local Businesses Act.”
