Fast Food Brands Duck Joint Liability for Child Labor Violations

Major brand names are facing new pressure to address child labor violations at their franchised locations following a surge in cases involving fast food restaurants and other businesses operating under corporate licensing agreements.

Most fast-food and drive through restaurants aren’t run by the name hanging above the door, but are actually independent owners who have signed a licensing agreement with a corporation to operate under their brand.

Throughout the Biden administration, the US Labor Department’s Wage and Hour Division has cited at least 33 independent franchisees of McDonald’s, Sonic Drive-In, and Dunkin’ Donuts, among other national brands, for violations ranging from allowing kids to work too late or operate ovens and other dangerous equipment, according to a Bloomberg Law analysis of the agency’s child labor enforcement actions.

Despite the nature of the labor violations occurring at franchised businesses, it’s uncommon for corporations to include explicit language on complying with any federal labor laws in their licensing agreements, legal observers said. The brand owners are reticent to exert control in a way that will make them joint employers in these franchise arrangements, they said.

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In recent years, the agency has issued citations against 16 McDonald’s franchise locations in Louisiana and Texas after investigators found that minors were working later than allowed under federal law and operating deep fryers, which are prohibited for kids under 16. Federal law bans kids who are 15 or younger from working for more than three hours on a school day and before 7 a.m. or past 7 p.m. during the school year.

In Kansas, a federal court ordered operators of 17 Sonic Drive-In locations to stop violating child labor rules after investigators found “for the second time in a year” that kids were working beyond the hours permitted under the Fair Labor Standards Act.

Rebecca Rainey

Minors working in dangerous conditions have drawn increased attention across the US from the Biden administration and the public. It’s prompted new calls for the brands behind these franchise operations to prevent the businesses operating under their name from flouting child labor rules.

“Whether it’s McDonald’s as a franchise or General Mills as the kind of name brand for Cheerios, they’re the powerful entity in these relationships. They can set minimum standards for their franchisees or in their supply chains,” said Laura Padin, director of work structures at the National Employment Law Project.

“They can regularly audit those companies for compliance, they can regularly even do in-house inspections. They can make all those requirements as part of the franchise agreement,” she said.

But plaintiff’s attorneys and regulators have been “overly aggressive” their efforts to implicate multiple entities as joint employers, a trend that has potentially scared off companies from including provisions on child labor laws in their licensing agreements, said Roger King, an attorney for the HR Policy Association.

“How much oversight and compliance can we do without triggering a complaint?” King said. “That’s the continuing tension.”

Franchise Agreements

Corporations set strict rules for franchisees, often dictating details from the type of cups used to scripting how employees should respond to customers.

It’s rare for an agreement to include any specific guidelines about complying with labor laws, however, absent a general disclaimer that the franchisee “must abide but all written laws,” said Marshall Steinbaum, an assistant professor of Economics at the University of Utah who has been reviewing franchise agreements for his research.

“It’s not surprising that franchisers would resist that sort of implication in the franchise agreement, because they basically exist in this sort of gray area where they don’t want joint employer liability,” Steinbaum said.

Companies in a joint employment relationship can both be liable for labor and employment law violations, such as not bargaining with a union or not paying appropriate minimum wages or overtime.

“So they don’t want to be seen legally as the employers of the workers who work for the franchisees, but they do want to be able to control what the franchisees do in every respect,” Steinbaum said.

Worker advocates argue that including specific instructions about how to comply with labor laws in franchise handbooks, like those applying to minors at work, could help educate small business owners who are looking to buy into the franchise model to launch themselves into the market.

“Franchisers set very detailed operating standards for their franchisees. They have operating manuals that are often hundreds, if not thousands of pages long on everything from store layout to the equipment that has to be used, to the dress code and uniforms,” said NELP’s Padin.

“They could easily be on top of this,” she added, “knowing all the mechanisms that the franchisees are using, they can easily audit and investigate franchisees for compliance.”

Companies Respond

Of the 19 franchise brands cited by the Biden DOL for child labor violations, only two responded to a Bloomberg Law request for comment on how their licensing agreement could help deter such violations.

Both companies stressed that illegal child labor practices aren’t tolerated, but didn’t provide any details on how they planned to respond to the child labor violations occurring under their brand.

“These reports are unacceptable, deeply troubling and run afoul of the high expectations we have for the entire McDonald’s brand. It is not lost on us the significant responsibility we carry to ensure a positive and safe experience for everyone under the Arches,” Tiffanie Boyd, senior vice president and chief people officer at McDonald’s USA said in an emailed statement. “We are committed to ensuring our franchisees have the resources they need to foster safe workplaces for all employees and maintain compliance with all labor laws.”

A spokesperson for Zaxby’s said in an emailed statement it “takes these violations very seriously.” The Georgia-based fast-food brand said its agreements include “strict requirements on our franchisees to comply with all applicable local, state, and federal laws.”

“We issue notices of default for uncured violations,” the spokesperson added, which “result in the termination of the franchise agreement.”

The International Franchise Association, which advocates for franchise corporations and lobbies against strict joint employer enforcement, declined to comment for the article.

Child Labor Enforcement

Franchise corporations may have to respond sooner rather than later, however, despite their longstanding concerns about joint employer liability.

When announcing a special taskforce on child labor earlier this year, senior DOL officials said the agency would be “applying further scrutiny to companies who conduct business with employers and staffing agencies that use illegal child labor.”

It also would “increase accountability for systemic abuses of child labor,” they said

The department also said during a July press briefing on its child labor enforcement efforts that it was updating its videos and guidance documents on how employers can comply with child labor rules, in addition to reaching out to franchise corporations.

“Private companies should be working with the department to stamp out illegal child labor, by evaluating their supply chain and the supply chains of their business partners, sharing best practices, and holding themselves and others to the highest standards,” a DOL spokesperson said in an emailed statement.

“Enforcement will always play a critical role in holding bad actors accountable,” the spokesperson said, “which is why we use all the tools at our disposal—including the hot goods provision of the FLSA and other enforcement strategies—to ensure that all employers, including host employers or those further down the supply chain, are compliant.”