McDonald's and the dealer franchise system

A decision involving the McDonald’s fast-food chain could have dramatic implications for the franchised car dealer system going forward.

Or not.

It depends on who you ask and their perception of what might come of a July 29 determination by the National Labor Relations Board’s general counsel.

Widespread labor actions in favor of higher wages for fast-food workers have raised questions about unfair labor practices at franchised McDonald’s and other stores. In that context, the general counsel gave a directive to the NLRB’s regional offices saying that McDonald’s could be held liable as a joint employer of the employees of its franchisees for any unfair labor practices committed.

The general counsel’s written directive is not public, so no one knows the specific grounds on which he made his determination.

Right now, that determination is not legally binding, said Frederick Warren, partner at labor and employment law firm Ford & Harrison in Atlanta. For it to become binding, a complaint first would have to be litigated before an administrative law judge, who would issue a decision, Warren said. That ruling would be appealable to the NLRB, and any decision there could be appealed to a federal court of appeals, Warren said, and potentially to the U.S. Supreme Court. In short, the litigation process likely will take several years, he said.

But if that directive becomes a precedent-setting ruling, it could lead to some dramatic changes for franchised car dealers, some lawyers said.

“It could conceivably have a major impact because on a daily basis you could see the factory having more control over the franchisee,” said Eric Chase, attorney at Bressler, Amery & Ross in Florham Park, N.J. “And most dealerships are not unionized, but this is being interpreted as a pro-union approach by this general counsel.”

If the calls for higher wages for McDonald’s workers succeed, Chase said, unions could gain a lever in their efforts to organize more car dealerships.

“What the unions can do is say, ‘We’ve proven ourselves in the wage and hour business and we have lots of experience with mechanics, too,’” Chase said. “That would be a big sell to employees in dealerships.”

To the degree this ruling becomes legally binding, Warren said, it could prompt either a lot less, or a lot more, involvement by automakers at their franchised dealers.

“The [franchisor] could say, ‘We’re going to go over all of the documents to make sure we’re not exercising any control over the franchisees.’ That way they remove any arguments that could be made against them,” Warren said.

“The other direction is they become so concerned that they may become liable to actions of the franchisees, that they exercise more control,” he said.

Warren said his gut feeling is that franchisors initially would not want to become more involved with their franchisees.

But factories have a long history of meddling in their dealers’ business. So it’s a guessing game.

“It is impossible to know whether it might impact auto dealers,” Jonathan Collegio, vice president of public affairs for National Automobile Dealers Association, wrote in an e-mail.

He noted that the differences between McDonald’s franchises and car dealerships are “so vast -- from state laws governing automotive franchises to the business operations themselves -- that all of this could be much ado about nothing at all.”

But it’s certainly something for the industry to watch.

You can reach Jamie LaReau at -- Follow Jamie on Twitter: @jlareauan

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