The NLRB and McDonald's

This week the general council of the National Labor Relations Board, the NLRB, issued a ruling on a case involving McDonald’s.  The ruling was that McDonald’s is a co-employer, along with the McDonald’s franchisees, of the hourly workers at all the restaurants.

“Well, wait,” you might say.  “Don’t the people behind the counter at my local McDonald’s work for McDonald’s itself?  I mean, the company logo is on those caps their wearing.”

Actually, the answer is no.  Most McDonald’s restaurants are owned by small independent businessmen (and women).  They pay the parent company for the franchise.  They agree to follow the rules of the franchisor, and in exchange the franchisor provides operating procedures, brand building, and group buying power.  This is the most common model for the fast food industry.

McDonald’s exercises more control over their franchisees than most.  The parent owns the land under every restaurant, and the franchisees pay rent, which is a major revenue stream for the company.  Also, McDonald’s monitors operations at every store, and sets guidelines for efficiency, throughput, and waste.  Every aspect of operations is covered by the operating rules.  This unusual degree of involvement was key to the NLRB ruling.

However, there are a number of things McDonald’s does not involve itself in.  Like who to hire, and who to fire, or how much to pay people.  McDonald’s does not track the hours of each employee at the restaurant, or calculate payroll.  McDonald’s guidelines might specify how many workers should be there for the morning rush.  But McDonald’s does not decide who is going to be scheduled to work those shifts.

Hiring and firing, determining pay rates, scheduling, and paying employees.  Those are the classic tests for determining who is the employer in a business relationship.  McDonald’s does none of those things.  So why would the NLRB suddenly decide that the case law of the last fifty years was incorrect?

The baseline assumption of the staff at the NLRB is that the best and most natural state of affairs is for everyone to belong to a union where they work.  Anything else is unfair, and possibly proof of a “great right wing conspiracy.”  This is in spite of the fact that union membership has dropped below 7% of the private sector workforce.  It’s not much of conspiracy if everybody is in on it.

Well, it turns out that small businesses with 40-50 employees are really hard to organize.  The business owners tend to fight really hard against unions, reasoning that having a formally adversarial relationship with their employees is both bad for business and bad for their personal financial interests.  From the union’s perspective, a single big target is easier to attack than a lot of small moving targets.  So the Service Employees Union, the SEIU, has lobbied the NLRB staff for favorable rulings.  Since the SEIU shares the same baseline mindset as the NLRB staff, they found a receptive audience.

This ruling will probably not survive the inevitable court challenges.  Still it does make me wonder.  If less than 7% of the workforce is unionized, maybe the conspiracy isn’t among the employers.