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Joint-Employer Questions Raised in New NLRB McDonald’s Case

Sept. 23, 2020, 7:58 PM

The federal labor board’s top prosecutor declined to pursue charges against McDonald’s Corp. for “meritorious” violations of labor law at a California restaurant, signaling that his office won’t seek to punish a parent company if a regional subsidiary acknowledges to be the direct employer.

National Labor Relations Board General Counsel Peter Robb indicated in a little-noticed filing late last week that he would accept a settlement brokered by one of the board’s regional offices, rejecting an appeal from the Service Employees International Union, which had argued that McDonald’s national corporate headquarters and a regional subsidiary are “indistinguishable corporate entities.”

The case involved a McDonald’s restaurant in Monterey Park, Calif., near Los Angeles, that was accused of anti-union activity. SEIU asked to have McDonald’s USA—the branch that oversees McDonald’s restaurants in the U.S.—included in the settlement. McDonald’s insisted the restaurant is actually managed by a closely held subsidiary in California known as McDonald’s Restaurants of California, Inc.

Robb’s decision builds on the high-profile NLRB case over labor violations by McDonald’s franchisees and contractors that culminated in a $170,000 settlement in December, which absolved the fast-food giant from any direct responsibility as a joint employer.

The latest case’s outcome suggests the NLRB may expand its employer-friendly interpretation of joint employment to more types of businesses, including regional subsidiaries, that previous administrations had considered identical to corporate management. It comes less than a year after the NLRB finalized a rule that made it harder for franchisors like McDonald’s and businesses that use subcontractors to be jointly liable for labor violations.

Robb’s Argument

Robb, in a Sept. 18 letter outlining his decision, held that the plaintiffs failed to show the settlement didn’t adequately address the violations. He added the board didn’t need to consider the joint employer question to remedy the workers’ allegations.

“All of the meritorious allegations were made at a single restaurant, by a local restaurant supervisor, to local restaurant employees,” Robb wrote.

“McDonald’s California admits it is the employer at issue in the charge,” Robb added. “McDonald’s USA is not alleged to have committed any unfair labor practice itself; and McDonald’s USA and McDonald’s Corporation are not needed to remedy any allegedly meritorious violation.”

SEIU argues that accepting a major corporation’s assertion that a subsidiary is the direct employer would give them legal cover for similar violations elsewhere.

“You’ve got a corporation that can avoid continuing accountability,” said Micah Wissinger, a partner with Levy Ratner who represented SEIU and was also on the litigation team for the joint-employer case against McDonald’s that settled in December. “They’re getting off the hook by saying that the shell company is an employer.”

Wissinger noted the settlement agreement was signed by Sharon Lepping-Pool, McDonald’s vice president and associate general counsel for global labor and employment law.

McDonald’s didn’t respond to multiple requests for comment.

‘Internal Corporate Designation’

McDonald’s has maintained subsidiaries in at least a dozen states, according to federal filings. Labeling those entities—the union described them as “shell companies"—as direct employers instead of part of the McDonald’s corporate structure allows the company to evade increased penalties for repeat violations, the union said.

SEIU sued McDonald’s last year for unfair labor practices at the Los Angeles-area restaurant. In complaints against both McDonald’s corporate and the California branch, the union alleged that managers unlawfully threatened to withhold benefits and cut workers’ hours if they continued to engage in union activity, including protesting the handling of sexual harassment complaints.

The union argued the McDonald’s California branch was nothing more than an “internal corporate designation.” McDonald’s corporate website lists the Monterey Park restaurant as “McDonald’s owned” rather than “franchise owned.”

The headquarters of McDonald’s Restaurants of California is listed in Oak Brook, Ill., less than three miles from the headquarters of McDonald’s USA. As recently as 2011, the company listed the California entity as a subsidiary in disclosures filed with the U.S. Securities and Exchange Commission. And in 2019, McDonald’s included the California entity in a severance plan for corporate officers.

As of 2014, McDonald’s Restaurants of California was responsible for nearly 11,000 employees, according to Bloomberg data.

SEIU attorneys noted that McDonald’s USA has provided paid sick leave, incentive bonuses, and other temporary benefits to workers the Monterey Park restaurant during the Covid-19 pandemic, and that the corporation said during the now-settled joint employer case that it has “total, absolute control” over regional entities.

In September 2019, one of Robb’s deputies denied SEIU’s request to label McDonald’s corporate as the employer, saying that an investigation “failed to reveal sufficient evidence that McDonald’s corporation is the employer of the relevant employees,” or that it contributed in any way to the alleged violations.

Union Faults Process

In a petition for appeal, SEIU argued that McDonald’s merely shifted responsibility “to a wholly-owned shell entity,” and that the national company is truly responsible for the workplace misconduct. It also took issue with how the NLRB regional office determined that the union failed to provide sufficient evidence that McDonald’s corporate was the direct employer before rejecting its request.

“This is incredibly troubling given that no evidence was solicited or taken from the Union prior to issuance of the dismissal letter,” the union’s petition said.

Robb’s acceptance of the settlement required McDonald’s Restaurants of California to post notices of workers’ union rights in the Monterey Park restaurant.

In a statement to Bloomberg Law, NLRB spokesman Edwin Egee said Robb’s decision “is fully consistent with the Board’s decision in the McDonald’s case released in December 2019. If McDonald’s Corporate was found to have violated the Act, the GC would have said as much.”

The federal government has taken action against McDonald’s Restaurants of California in the past. In 2013, the Equal Employment Opportunity Commission brokered a settlement with the California entity over allegations of workplace discrimination. Other federal lawsuits have listed both McDonald’s USA and the California entity as defendants.

To contact the reporter on this story: Ian Kullgren in Washington at ikullgren@bloombergindustry.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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