Can a Local Franchisee Expect the Franchisor to be Jointly Liable for Employment Law Violations?

A discrimination lawsuit recently filed by a group of former McDonald’s employees in Virginia could usher in major changes to the way both franchisors and their local franchisees assess employment practices liability. The lawsuit’s ten plaintiffs complain of race and sex discrimination in violation of Title VII. They allege various forms of harassment during employment and attribute their eventual discharges to prohibited motives. As a suit against their local franchisee-employer, the case is fairly unremarkable — discrimination claims against local franchise owners by aggrieved fast-food workers, unfortunately, are not uncommon. What makes this particular case notable is its relative novelty in naming not just the local franchise organization, which owns and operates the three stores from which the plaintiffs were fired, but also the national franchisor giant, McDonald’s USA LLC itself. In naming the national franchisor in addition to the local franchise owner/operator, the plaintiffs’ lawyers appear to be riding the coattails of the National Labor Relations Board’s ground-breaking December 2014 decision to file complaints alleging labor-law violations against not only a number of individual McDonald’s franchises but also the national franchisor, relying upon a joint-employer liability theory. The joint-employer doctrine is not itself a novel concept — the National Labor Relations Board has recognized the doctrine for decades when more than one entity is involved in oversight of a workplace, and courts have consistently applied it to claims under other federal employment laws, as well. The doctrine’s focus is control, with the question of who is controlling the terms and conditions of employment lying at the heart of the inquiry. In the franchise context, historically, everyone involved — from the workers to the unions, along with the employees’ lawyers, the NLRB and the courts — has assumed that only the local franchise owner may be liable for employment law violations. After all, the franchisee typically hires, fires and manages its workers with little to no oversight from the national franchise, so it makes sense that the liability would follow the actor.

When the NLRB assigned labor-law liability to the national franchisor (in that case, McDonald’s), it opened the door to a shifting paradigm in this area of the law, and the plaintiffs in this new Virginia lawsuit are attempting to harness the momentum that the NLRB established, importing it into the Title VII context. It seems highly likely that McDonald’s USA will challenge the lawsuit, seeking dismissal on grounds it cannot be held liable because it was not the workers’ employer. This move would place the joint-employer issue squarely before the court, and franchise employers would be wise to watch the decision closely.

If the courts follow the NLRB’s lead in finding national franchisors jointly liable for employment practices alongside their local franchisees, the implications for national franchisors are relatively clear. Under the joint-employer doctrine, national franchisors would face liability that previously did not exist. What this means for local franchisees, however, is a bit less clear. On one hand, the presence of the likely-deeper-pocketed national counterpart may allow a local operator to pass off some liability, or at least point the finger in that direction. On the other hand, though, the prospect of the deeper-pocketed defendant may incentivize more disgruntled workers to sue, bringing some out of the wood work who might otherwise have thought a claim against a local owner wouldn’t be worth the expense or effort.
Much remains to be seen about how the law in this area will develop, but it seems clear that franchise participants at all levels should pay attention. Stay tuned…