Settlement Rejected in McDonald’s Franchisee Case

Posted July 17, 2018 10:26 p.m. EDT

In a setback for McDonald’s, a federal administrative law judge on Tuesday rejected a proposed settlement between the company and the government’s top labor-law prosecutor in a case that could threaten the viability of the franchise business model.

In the trial, which had begun under the Obama administration in 2015, the government contended that McDonald’s was liable for numerous labor-law violations committed by its franchisees. A finding for the government could have exposed companies that rely heavily on the franchise model to enormous liability.

But in January, the new general counsel of the National Labor Relations Board, an appointee of President Donald Trump, was granted a 60-day stay in the case to negotiate a settlement with the company, even though the trial was only days from concluding.

The general counsel, Peter B. Robb, and the company then presented a proposed settlement to the judge in March.

The judge, Lauren Esposito, rejected the settlement, saying it was not “a reasonable resolution based on the nature and scope of the violations alleged and the settlements’ limited remedial impact.”

Esposito argued that a legitimate settlement must at least approach the effectiveness of a remedy resulting from a finding against the company. She said McDonald’s refused even to guarantee that its franchisees would abide by the terms.

Some of the proposed remedies included giving workers back pay and placing detailed notices in the workplace describing the settlement. The notices would have apprised workers of their right to form a union or band together to improve their working conditions, and would have included a pledge not to interfere.

“The way this is all structured, all the liability is on the franchisees, there is no obligation on McDonald’s part,” said Micah Wissinger, a lawyer for the Service Employees International Union and affiliated groups, who helped represent the workers in the case. “Part of why she has rejected it is that they have no real obligations to do anything.”

McDonald’s and Robb’s office must now decide whether to abandon the settlement approach and resume the trial; try again on a new settlement agreement; or, most likely, appeal the decision to the National Labor Relations Board, where Republicans hold a majority.

“We are disappointed that the administrative law judge failed to approve the settlement agreement, further prolonging this already lengthy and expensive litigation,” McDonald’s said in a statement. “McDonald’s and its franchisees are evaluating our options.”

The National Labor Relations Board declined to comment.

The key question is whether McDonald’s is a so-called joint employer of the workers hired by its franchisees, meaning it controls working conditions. The legal standard for what constitutes control has moved in recent years, as the partisan composition of the labor board has changed.

In addition to making McDonald’s liable for violations by its franchisees, a joint-employer finding would also force the company to bargain with workers who formed a union.

The workers at the center of the case complained that their supervisors had punished and even fired some of them for taking part in a campaign for a $15 hourly wage and a union, an effort that begin in 2012.

A National Labor Relations Board general counsel appointed by President Barack Obama investigated the charges and issued complaints against McDonald’s and franchisees in cities across the country in 2014.

In her decision, Esposito noted the lengths to which McDonald’s had gone to prolong the proceedings, including initially refusing to hold pretrial conference calls with the other parties unless the calls were transcribed (a request she denied) and raising questions about the authenticity of documents submitted as evidence by the government, even though most of the documents had been subpoenaed from McDonald’s.

“From the moment the first witness took the stand in this case on March 14, 2016, the evidentiary issues raised by McDonald’s and the franchisee respondents have simply been extraordinary,” she wrote.

Jennifer Abruzzo, who was deputy general counsel at the National Labor Relations Board during the Obama administration, said the judge was implying that McDonald’s had tried to hold out for the possibility that a Republican would win the presidency in 2016 and appoint a new general counsel.

“Without saying it, she was like, McDonald’s just delayed this long enough to have a change, so that they could push through this settlement agreement with a general counsel who was willing, able and wanted it,” Abruzzo said.