Report: Regulator Names McDonald's a 'Joint Employer'

    By Kate Taylor | Small Business

    Franchisors may now be held liable for employees' wages, working conditions and more.

    McDonald's says it was notified by the National Labor Relations Board (NLRB) that it can be named as a "joint employer" for all workers – including those at franchise-owned restaurants, according to the Associated Press.

    The board reportedly notified McDonald's on Tuesday. McDonald's did not immediately respond to's request for comment.

    The decision will likely have far-reaching repercussions throughout the franchise industry.

    Traditionally, franchisees have exercised control over employment issues, such as hiring, firing and determining pay rates, benefits and schedules. Meanwhile, franchisors stay out of day-to-day operations, focusing on brand standards, training and advertising.

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    By maintaining that employment issues are purely franchisee concerns, franchisors – especially fast-food chains, like McDonald's – have dodged criticism and lawsuits over minimum wage and employment practices. Now that McDonald's is considered a joint employer, the burger chain and other franchisors could be on the hook for those responsibilities.

    Labor activists have championed the shift, arguing that if franchisors are deemed joint employers, they will be forced to take system-wide action on issues such as minimum wage instead of pushing the issue onto franchisees. Meanwhile, franchise groups, such as the International Franchise Association, have claimed that the shift will reduce franchisees' independence and raise costs for franchisors.

    McDonald's plans to challenge the NLRB's decision, according to the report. "This is such a radical departure that it should be a concern to business men and women across the country," Heather Smedstad, senior VP of human resources at McDonald's, told the Associated Press.

    The majority of McDonald's stores in the U.S. and beyond are run by franchisees. In 2013, McDonald's had more than 35,400 restaurants operating worldwide, 80 percent of which are franchised.

    For better or for worse, the franchising industry has some huge changes on the horizon, at McDonald's and beyond. 

    Related:  New McDonald's Lawsuit Could Redefine Franchising as We Know It

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