NLRB Ruling Rocks Franchise Industry

A new ruling by the National Labor Relations Board, which states McDonald’s is the joint employer of franchise workers, could have far reaching impact on franchising at other companies and in industries beyond fast-food chains.

Franchise owners are typically considered the only employer of their workers. Because franchisors operate as separate legal entities, they have always been isolated from labor disputes – such as the class action lawsuit filed in three states over wages and working conditions at several franchise-owned McDonald’s locations.

With the NLRB’s decision, all of this may now change. Although the current ruling is restricted to McDonald’s, industry trade groups and associations are worried about the fallout. Franchisors may begin to distance themselves from franchise locations and businesses that use contractors or temp agencies may look to change their business models to avoid similar lawsuits.

The ruling also brings up questions concerning the tax treatment of employee compensation for franchisees and what will qualify as a small business according to the definition in the Affordable Care Act.

Franchise owners with questions are encouraged to contact their attorney.