By Jacob Gershman
An attorney for McDonald's Corp. told a federal administrative
judge the company is a victim of a union-orchestrated attack on its
brand, as legal proceedings got under way in a labor dispute that
could upend the relationship between big retailers and their
franchisees.
At issue in the hearings is whether companies like McDonald's
Corp. share responsibility for the actions of their franchisees,
particularly regarding complaints about low wages paid to fast-food
workers.
The National Labor Relations Board's general counsel, an Obama
administration appointee who functions as the nation's chief labor
law prosecutor, determined in July that in the case of McDonald's,
the answer is yes. He later issued complaints alleging the
fast-food company and several franchisees violated the rights of
restaurant workers who participated in activities to improve wages
and working conditions.
The moves were the latest in a fraught relationship between U.S.
corporations and the labor board and come as pressure is building
to give low-wage workers raises.
Depending on how the case plays out, the dispute could make it
easier for labor unions to organize fast-food workers and negotiate
wages and expose franchisers in a range of industries to greater
liability in labor matters.
Fast Food Forward, a group backed by the Service Employees
International Union, has been organizing demonstrations at
McDonald's and other fast-food restaurants, demanding a $15 hourly
minimum wage and the right to form a union.
A key question is determining when a corporate brand-owner like
McDonald's becomes jointly responsible for labor violations at
their franchisees. Currently a parent company would have to have
direct and immediate control over personnel matters like hiring and
firing. The case could decide whether it is enough that the parent
exercises control over quality, the brand and training.
Monday's proceeding in Manhattan is the first of several
consolidated hearings to address the general counsel's complaints.
Others are scheduled to take place in Chicago and Los Angeles.
Judge Lauren Esposito, a former NLRB field attorney and labor union
lawyer, is presiding over all three.
An issue that flared on Monday was whether McDonald's should be
allowed to subpoena investigative and communications firms retained
by the union to assist with SEIU's worker-rights campaign. The
company argued that it has the right to know more about the motives
behind the campaign.
"We believe we have the right to defend our company from these
relentless attacks," Jones Day partner Willis Goldsmith, who
represents McDonald's, told Judge Esposito.
Attorneys representing the NLRB's general counsel, SEIU and
companies the union hired to assist with its worker rights campaign
told the judge that McDonald's didn't have a right to those
documents. The judge didn't rule on whether to revoke the
subpoena.
David Dean, a member of SEIU's legal team, said in an interview
that McDonald's scrutiny of the firms shows that it "has in essence
been caught involving themselves intimately in labor relations at
their franchise stores."
Unions say the standard needs to change to address arrangements
in which one company exercises control over another but has little
responsibility for its workers.
McDonald's maintains that its franchisees, which own 90% of
McDonald's more than 14,000 U.S. restaurants, set their own wages
and control working conditions. It has wielded that argument as it
faces intensifying labor protests and mounting lawsuits over worker
conditions.
Trade groups such as the International Franchise Association say
that treating franchisers as joint employers undermines a
long-established and good business model that gives store owners
autonomy. They also worry it would make fast-food and other
industries more vulnerable to campaigns by union-backed groups that
seek to organize workers.
It could take months before the judge in the McDonald's case
issues a ruling. If she rules against McDonald's, the company is
expected to appeal the dispute to the NLRB's full five-member board
in Washington. The battle could then head to a federal appeals
court. The dispute may ultimately get decided by the U.S. Supreme
Court.
Write to Jacob Gershman at jacob.gershman@wsj.com
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