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McDonald's wage announcement is in part about a massive legal battle with consequences for the whole fast food industry

Does McDonald's employ this woman? The answer matters more than you may think.
Does McDonald's employ this woman? The answer matters more than you may think.
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McDonald's announced Wednesday it was raising the wages for tens of thousands of McDonald's workers nationwide. But the company didn't just announce the feel-good news that it's giving workers higher pay, not to mention paid leave — it also pointed out that its high-profile wage hike will only affect workers at the 10 percent of its stores that are company-owned.

The company emphasized in its press release that the other 90 percent of stores wouldn't be affected, as Vox reported yesterday: "The more than 3,100 McDonald's franchisees operate their individual businesses and make their own decisions on pay and benefits for their employees."

McDonald's isn't just being open about its business model here; it's making a point that it sees itself as separate from its franchisees. And that makes sense when you understand the legal battle heating up this week at the National Labor Relations Board.

The very nature of the company's relationship to its workers is in question in that case, and it could have massive implications for franchises nationwide.

Is McDonald's an overbearing franchiser?

One of the big points of franchising is to create a mutually beneficial relationship: the franchisee benefits from the parent company's brand and well-known products while also getting to make his or her own business decisions. And franchisers, meanwhile, can get more rapid growth and more revenues, without dealing with day-to-day minutiae of managing all these smaller outlets. Meanwhile, both sides give up some measure of control — a franchisee follows franchiser rules about what it serves, for example, while the franchiser gives the franchisee some independence in hiring, firing, and scheduling.

But the NLRB is trying to decide right now whether McDonald's is more than just a distant parent company to its franchisees. The question is whether McDonald's is a "joint employer," along with its franchisees.

NLRB hearings began this week that could help determine the answer to this question. In December, the board issued complaints against the company, alleging (among other things) that it retaliated against workers who protested in favor of higher wages. In naming McDonald's as a joint employer, the NLRB's general counsel, Richard Griffin, is essentially arguing that if McDonald's has enough control over its restaurants, it should have to also share in the liability of labor law violations. Griffin has also argued for a broader definition of what it means to be a "joint employer."

Because of its rules governing day-to-day operations at its restaurants, from the use of scheduling software to bag folding, some have argued the company is just as much an employer to its workers as franchisees are.

And if a franchiser is not a joint employer, under current law, that means it also plays no part in other issues that can happen at the franchisee level — like negotiating with unions or, say, setting the pay of workers.

As it stands now, the decision to boost pay could put franchisees in a bind, the New York Times writes. On the one hand, the franchisees could feel the pressure to raise their own wages. But one anonymous franchisee told the Times that "business in his restaurants had been 'horrible' and that he did not see how he could increase his employees’ pay."

A fissuring workplace

This question of who is a joint employer isn't just about franchisers and franchisees. The question of the increasingly "fissured workplace" has become a central one in the US labor market. David Weil, now the administrator of the Wage and Hour Division at the Department of Labor, argued in a 2014 book that as businesses have distanced themselves from workers through means like subcontractors and temp agencies, shrugging off their roles as direct employers, it has led to lower wages, worse benefits, and growing inequality.

In addition to the McDonald's cases, the NLRB has yet to rule on another high-stakes case involving waste management firm Browning Ferris. The question in this case is whether Browning Ferris is a joint employer and therefore has to negotiate with unionized workers at a subcontractor. In this and the McDonald's case, the broader question of what it means to be an employer is at stake. And as attorney Michael Lotito told me in December, this could have "cataclysmic" effects on the nearly 9 million US workers who work in franchises, not to mention the relationship between contractors and subcontractors and even between businesses and their suppliers.

"It has a way of upsetting these business relationships and employers thinking they were separate suddenly finding they are combined," he said. "That has just enormous implications for business relationships."

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