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A new effort to boost wages for fast food workers is playing out before the National Labor Relations Board in a case pitting workers against McDonald’s and its franchisees. At issue is whether the McDonald’s corporation should be accountable for the labor policies at its franchise restaurants. The cases raises questions about who is an employee and who is the employer in a changing economy. We examine what’s at stake for all parties and look at how the case is likely to unfold.
- Wilma Liebman Former Chair, National Labor Relations Board; Senior Lecturer, Cornell University School of Industrial and Labor Relations
- Benjamin Litalien Founder of Franchise Well Consulting; Developer and Instructor of the Franchise Management Program at Georgetown University’s School of Continuing Studies
- Michael Wasser Senior Policy Analyst, Jobs With Justice
MS. JEN GOLBECKFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. I'm Jen Golbeck from the University of Maryland sitting in for Kojo. It's hard to make a living selling Big Macs at McDonald's. Fast food wages average less than 10 dollars an hour, and work schedules are often irregular and unpredictable. In recent years, fast food workers, often backed by outside groups, have been lobbying for better pay and more hours. They've argued corporations like McDonald's are part of the problem and should be held accountable for the employment practices of their franchises.
MS. JEN GOLBECKLast week, that argument paid off. The General Council of the National Labor Relations Board said there's sufficient evidence to link McDonald's USA to the labor practices of its franchised restaurants. The business community is outraged by the decision, saying a ruling in favor of the fast food workers would end up -- would upend decades of precedent and jeopardize millions of jobs. The case raises questions about the definition of an employee and an employer as the economy changes. And about the Labor Board's role in deciding. Joining me to explore these issues is Benjamin Litalien, founder of Franchise Well Consulting, Developer and Instructor of the Franchise Management Program at Georgetown University School of Continuing Studies. Thanks for joining us.
MR. BENJAMIN LITALIENMy pleasure.
GOLBECKAlso in studio is Michael Wasser, Senior Policy Analyst at Jobs With Justice. Thanks for being with us.
MR. MICHAEL WASSERThanks for having me.
GOLBECKAnd on the phone from Philadelphia, we have Wilma Liebman, former chair of the National Labor Relations Board and Senior Lecturer at Cornell University School of Industrial and Labor Relations. Wilma, thanks for joining us.
MS. WILMA LIEBMANThank you for having me.
GOLBECKWe'd also love for you to join us. You can join by calling 1-800-433-8850. Or by sending us an email to email@example.com. Wilma, I'd like to start with you. In the last couple years, fast food restaurant workers have been trying to draw more attention to their wage complaints by staging one day work stoppages and adopting the slogan, 15 dollars and a union. What is it that they want?
LIEBMANWhat they want to do, in the short run, is to draw attention to their working conditions and the wages under which they work. They've done this, beginning in late 2012, with a series of one day strikes, which have continued since then, over a period of time. Each time increasing the number of cities in which the strikes occur. Most recently occurring on a global basis. And as you said, what they're trying to do is draw attention to the fact that they're working at very low wages, that the minimum wage has been stagnant for a long time. That they do not work full time schedules.
LIEBMANAnd that their part time work is usually very irregular and unpredictable. And that they are not able to make a living wage to support themselves and their families, or to be able to easily schedule second jobs or to go back to school in order to try to advance themselves. So, basically, this is an effort to publicize these conditions, and in the process, hopefully to mobilize for improvements.
GOLBECKBen, the dispute with McDonald's involves the definition of a business franchise and the mechanics of how franchisees hire and manage their workers. Explain how a fast food or other franchise works today.
LITALIENCertainly. Franchising's been around for a number of decades. It's a very proven model. It's actually a strategy that's used by any number of companies, to grow their business, expand their brand. And in that relationship, it's an independent contractor relationship, allowing the local business owner to gain the benefit of economy of scale and the other benefits that come under a brand. But have control at the local level over hiring, over marketing, and any number of other items within that model.
GOLBECKYou can also join the conversation. Have you worked in fast food? What was your experience with hours and wages? Or do you own a franchise? What's your relationship with the franchiser? You can join us by calling 800-433-8850. Or get in touch with us through Facebook or send us a tweet to @kojoshow. Michael, your group is arguing that the McDonald's corporation has just as much say in employment practices as its franchise owners. How so?
WASSERWell, even though the McDonald's corporation signs these agreements with these individual franchisees, the reality is that the corporation actually has -- exercises a great deal of control. Earlier this year, there was a -- we call wage theft lawsuit, filed by workers, which allowed through discovery, to learn about some of the practices that, that McDonald's the corporation, is exercising, that allows them to have this control.
GOLBECKCan you talk a little bit about that case, because it's one I think that was in the news that people will recognize.
WASSERSure. So, this was a case that a class of workers filed against a series of franchisees. And also against the corporation, alleging that there were overtime violations, that they were docked for leaves that they didn't actually leave. They were working during their breaks that they weren't paid for. And through discovery, we found out , or, the plaintiffs were able to find out, that McDonald's, in these stores, they install -- the corporation installs proprietary scheduling software. Software that tracks when workers should be on the job.
WASSERYou know, how many workers they need to have at any given time. It tracks the performance of the workers when they're at the registers. We also know that McDonald's the corporation provides labor cost targets to the franchisees at their stores. We know that the corporate staff comes and provides advice on business performance, including on the personnel decisions that are being made in the stores. They send secret shoppers in. So all these different elements of business practices, regardless of what's in the contract, what they say on paper, McDonald's is exercising significant control over the operations of these individual franchisees.
WASSERWhich means that they're -- actually have control over the employment practices in these stores. You know, it's no surprise when we walk into any given McDonald's that it seems uniform to us, it seems the same experience as the last McDonald's we were in. That's because of the control that the corporation has across the country, and that doesn't just mean the posters or the promotional materials they put up, but also is the way that they treat their workers.
GOLBECKWilma, what exactly did the General Council of the National Labor Relations Board decide last week, and what happens next? Because this is by no means a final decision.
LIEBMANThat's correct. This is the beginning. The General Council of the National Labor Relations Board acts as an independent prosecutor. And a number of cases were brought to him alleging a variety of unfair labor practices and alleging that McDonald's is a joint employer with its various franchisees that were named in these charges. After an extensive investigation, the legal issue was placed before the agency's General Council for the determination of whether to pursue claims against McDonald's as a joint employer. And what the General Council decided last week was that there was a reasonable basis to conclude that McDonald's is a joint employer in the sense that it shares or co-determines wages, terms and conditions of employment.
LIEBMANAnd that the cases where merit has been found on the underlying alleged unfair labor practices, that those cases will proceed to allege McDonald's and the relevant franchisees together as joint employers. I believe that there will be a process where settlement will probably be discussed with all the parties, and absent a settlement, then the case would go to a trial. And I understand that the cases would ultimately be consolidated. They would go to a trial before an administrative law judge of the agency, of the National Labor Relations Board.
LIEBMANThe judge would hold a trial. He would have witnesses, live witnesses. He'd accept -- he or she would accept documentary evidence. The parties would make arguments. They'd file briefs. And ultimately, the judge would issue a decision, which is considered recommended findings of fact and conclusions of law. The losing party or parties would then have a right to appeal the judge's decision to the five member NLRB, National Labor Relations Board in Washington, D.C.
LIEBMANThe board itself would then consider these cases, consolidated cases on the written record. And eventually, it would issue a decision. If it found that there was merit to these charges and if it found that McDonald's was indeed a joint employer with the franchisees, then McDonald's and/or the franchisees would have a right of appeal to a federal court of appeals. So, as you say, this is just the beginning of a process that can sometimes be very extended and take a long time.
GOLBECKBen, can you follow up to that and talk a little bit more about the relationship between a franchiser and a franchisee, and also what this notion of being a joint employer means.
LIEBMANA joint employer basically is a doctrine that is well established in the law. The concept itself it absolutely nothing new. The doctrine really was articulated in the early 1980s as two separate entities which share or co-determine terms and conditions of employment. Over the years, the board itself has applied that test in a variety of different ways. Sometimes it has found joint employer status where there was direct and indirect control over the terms and conditions of employment. Sometimes, it has found that where there's just a right to control, that that's sufficient sometimes, that it's found that the right control is not sufficient.
LIEBMANSo, the test itself, I use the term morph. It has morphed a little bit over the years, usually without much explanation. It's just articulated differently at different times. And so, what I believe the general council will likely be arguing here is that the basic test from 1982 is correct and that it should be applied to cover both instances of direct and indirect control. And situations where the franchiser has a right to control.
LIEBMANIn this particular situation, I think, broadly stated, the notion would be that McDonald's, through its various systems, though the franchise agreement, through the handbooks, through the operational manuals, through the various processes that they have in place, has the ability to both directly and indirectly control many of the terms and conditions of employment of its employees. And that this is done, in part, as a way of protecting its brand. And was said already, you go in to any McDonald's in the country and they pretty much look alike.
LIEBMANBecause the way the services are delivered, the way the food is made, the way the customer service is put in place, they are all part of the McDonald's system, which is really enforced through this sophisticated system of controls.
GOLBECKSo Ben Litalien, can you follow up about this franchiser/franchisee relationship?
LITALIENYes. Again, it's been around for a long time. It today, now, is attracting a lot of attention, quite frankly because of its unparalleled success in allowing individuals an opportunity to participate at a regional, national, and in many cases global level, you know, business model they otherwise could not afford to do on their own. Would not have the sophistication to do on their own. Or, and otherwise, have the ability to do. So, it's in large part, due to the success of the franchise model that we're even having this discussion today.
LITALIENThat being said, all of the elements that Michael referred to, those are tools and resources provided by a franchiser under its brand to help franchisees be successful, to operate efficiently. And in none of those things that were mentioned is there either a legal opportunity to control the employment relationship or a practical one. McDonald's has no interest in being involved in the employment level at the local level. That is the core of the franchise model. That franchisee's competitive advantage, with McDonald's, is their local influence, which includes hiring, training, paying. In some cases, firing and disciplining employees that should be hired and paid at fair market rates in their particular market.
GOLBECKSo let me -- let me follow that up with a question for you. The International Franchise Association said the Labor Board's decision to pursue a case involving McDonald's puts millions of jobs at risk, along with the livelihoods of hundreds of thousands of independent franchise owners. Do you agree with that? And what would it mean for a franchiser to be liable for the decisions of a franchisee?
LITALIENYes. I would generally agree with that statement for the following reasons. First, you've got three-quarters of a million individuals in this country who own and operate one or more franchise businesses. That's a significant portion of our small business community. And they're doing so relying on a few important facts. One is that they can operate independently, that they're not being dictated to with regard to how they operate at the local level, especially in regards to the employment practices that they follow and what worked best for them in their local community.
LITALIENAs far as the franchisees and their interest in being a part of a system where they're being dictated to as to what they should be doing or how they should be practicing at a local level, it's going to reduce interest in the model. There's no doubt about it. So yes, it would have an impact on someone's interest in becoming a franchisee.
LITALIENSecondly, the employees, the millions of individuals out there who work every day in a franchise business. You know, any time there's an artificial insertion by the government that affects small business, the business has to respond. They're going to respond with higher prices, they're going to respond with more innovation and automation to reduce the impact of an artificial, you know, wage or otherwise in their business. So yes, I think that, you know, should this result in some change in the relationship between the franchise or in the franchisee, it will most certainly result in less franchises and less jobs in the franchise sector.
GOLBECKMichael Wasser, can I get you to respond?
WASSERWell, this case is really about answering the question of who's the boss. And the general counsel is bringing forth this complaint arguing that McDonald's, the corporation here, is the boss. You know, another part of that, the wage theft case was that McDonald's is running a job board where you could post -- you could search for jobs within individual franchisees or within corporation-owned stores.
WASSERSo there really is this connection to the workers themselves even if they act as if they're not the real boss. But the point is that here in fast food and across the industry -- across the economy that corporations like McDonald's are setting standards so that they can take the best of the deal and leave the franchisees with the worst of it. That's really what is part of pushing down these employment conditions.
WASSERThere's a bill in California actually that would give franchisees more rights with their -- in their relationship with the franchiser which has come out of this frustration that the contract that they sign is this take-it-or-leave-it contract. But that leaves a lot of control and a lot of input from the corporation. And for workers they recognize that the corporation that's setting the standards and setting the terms and conditions that lead to the low pay. The low pay -- you know, 52 percent of fast food workers have to rely on some form of public assistance. It's dictated from the top but it's pushing itself down.
GOLBECKI'd like to follow up on some of those points by taking a call from John in Annapolis, Md. John, you're on the air. Go ahead.
JOHNHi. I'd like to ask your panel, given the roadmap that one of your guests laid out, this is something that's going to take years and years to finally come to finality at the federal level on. I'm curious, could states take the general counsel's opinion and turn the elements that he identified as a joint employer into state law so that McDonald's, for example, in California could be identified as the joint employer of all the California franchisees employees?
GOLBECKThanks for your call, John. Wilma, do you want to try that one first?
LIEBMANWell, first of all, the -- in terms of labor law in our country federal labor law preamps anything the states might do But needless to say, there are many workplace laws beyond just the National Labor Relations Act. So the case that the general counsel has laid out applies to the joint employer definition under the National Labor Relations Act. I think there probably is room for the states to proceed in other areas.
LIEBMANThe -- Michael mentioned the California state legislation -- of course that has to do with a franchise or a franchisee relationship. I think other states are considering other types of legislation. There are joint employer doctrines that come up under wage and hour laws. Certainly the states are free to legislate in that area because the Fair Labor Standard Act, which is the federal law, only sets a minimum. The states are permitted to go higher. So I think the answer to the caller is that there is room for states to act although not in the specific area of labor law.
GOLBECKAnd Michael, is this a trend that we're going to see that states will start taking some of these actions while we wait for the federal government to decide?
WASSERI think you'll certainly see -- we've already seen this already in the minimum wage fight, for example, that workers themselves are not waiting for congress to take action because they've seen what hasn't happened there. And that they're going to the states and to local municipalities where they can to fight for better conditions, fight for better standards that regulate the labor markets that they're working in.
GOLBECKAnd Ben, your thoughts?
LITALIENWell, certainly states are involved in legislating and franchising. You know, 15 states have direct franchise laws that franchisors need to be aware of and comply with. And they vary. But there's also independent contractor laws that vary across the country that franchisors need to be aware of and comply with as well.
LITALIENSo states are definitely getting involved. The cautionary tale here from my perspective, you know, given our free enterprise system is, you know, do you want franchisees operating in your state? Do you want national brands? You know, it wasn't too long ago that national brands stopped selling franchises in a state because of significant legislation that was passed which is now, you know, kind of been undone to a certain extent.
LITALIENSo I think the states have to ask themselves, you know, do they want to have franchising represented in their state? In many cases they may be limiting their state citizens access to particular brands because franchisors choose not to do business in those states.
GOLBECKWe'd like to hear from you as well. Do you think corporations should be held accountable for the employment practices of their franchisees? You can join the conversation by calling 1-800-433-8850. We'll continue our conversation after this short break. I'm Jen Golbeck and you're listening to "The Kojo Nnamdi Show."
GOLBECKWelcome back. We're talking with Benjamin Litalien, Michael Wasser and Wilma Liebman about McDonald's labor franchises and the minimum wage. You can join us by calling 1-800-433-8850 or by sending us an email to firstname.lastname@example.org. Wilma, there's a related trend at play here too. Some corporations, with and without franchises, use employment agencies or other contractors rather than hiring workers directly for certain jobs. Give us some examples like housekeepers in the hotel industry.
LIEBMANYes, thanks. Well, I have learned that it is the practice in many, many hotels not to directly employ many different job classifications, such as the housekeepers. So the hotel, many of which are also franchised, but many of them will employ subcontractors or leasing agencies to provide the housekeeping staff. These leasing agencies directly hire -- do the payroll for their employees but they work onsite at the hotel. From all appearances are the employees of the hotel.
LIEBMANBut what you say is that over the last 20, 30 years there's been an increasing incidence of large corporations separating out various of their functions and using either franchise models or outsourcing or subcontracting or what I call in-sourcing using temporary staffing agencies to bring employees into a work site.
LIEBMANAnd this is a way, I think, in many instances of corporations trying to achieve efficiency, trying to achieve flexibility. But at the same time it is either intended to or has the consequence of insulating the corporation from the direct employment responsibilities and labor law and workplace law obligations. So it's a shifting the risk. And at the same time it seems to have had the effect of putting downward pressure on wages so that there's a competition for these kinds of services. And it keeps wages at a very low level.
GOLBECKMichael, you say Wal-Mart does this kind of thing too with independent contractors.
WASSERWell, they do it with -- for example, in their supply chains. If you look at a Wal-Mart warehouse, for example, you may see Wal-Mart's name on the wall and Wal-Mart goods are going through the warehouse. But it may be one employment agency is hiring the workers that are working on the docks. Another employment agency is the legal employer of the forklift operator, for example.
WASSERThis is the system of breaking down the employment relationship again where Wal-Mart is the boss but it's passing off -- really the way to think about it, they're passing off the cost of doing business and to becoming the price of going to work that the workers themselves are encountering the cost of having to figure out part time schedules that change from week to week, poverty-level wages.
WASSERWe talked -- you know, I mentioned earlier that whether or not states wanted franchisees operating in their states, I think the question is actually from my opinion what -- do they want a high-road model? You know, 52 percent of fast food workers on public assistance, that's a cost of nearly -- I think it's about $7 billion in taxpayer dollars that is in affect subsidizing these corporation's workers. And that's in part because of these new employment practices that we're seeing.
GOLBECKSo, Ben, Wilma and Michael have both mentioned that this sort of model seems to be pushing down wages. What'd your reaction to that? Do you think that companies are using these independent contractors as a way to underpay their workers or are they making business decisions based on the market?
LITALIENWell, I think we still live in a free-market society and capitalism is still alive and well. So, you know, with that in mind, you know, any business is going to avail itself to whatever legal opportunities that it has, any tools, any resources, any strategies like franchising, like subcontracting, like temporary agencies. These are all viable, legal forms of business. And certainly as a business owner, they're going to look at all different aspects to see how most efficiently they can operate. To kind of broad brush this with the notion of who's the boss in order to intimate that it's, you know, some clandestine effort to underpay workers is, you know, a gross exaggeration.
LITALIENThe fact is, I've interacted with literally hundreds, possibly thousands of franchisees across this country, as is my business, as is my, you know, teaching. And quite frankly, you know, I don't think that this sentiment is held, you know, across the board. As a matter of fact I know it's not, so I think that, again, in our market society, businesses will use whatever tools are available in order to operate most efficiency. It doesn't mean that everyone will like the approach that they take but it's certainly within their purvey to do so.
GOLBECKMichael, what's your response to that?
WASSERI think that we can still -- you know, you can have business success and have laws which are nothing more than the rules of the game that society establishes that have a level playing field so that workers in the community benefit too. You know, I'm not too worried about the fast food corporations for example where the CEO to worker pay is 1200 to 1 in the year 2012. It's a $200 million industry.
WASSERAnd I think that there's margins to take a high-road approach like employers like Shake Shack and pay a better wage and to respect the rights of workers and still succeed.
GOLBECKThis question's for all of you but Ben, I'm going to ask you to respond first. If I work at a McDonald's restaurant or another fast food chain and I'm upset about my hours or my pay, who do I go to to complain? Do I go to the franchise owner or the chain's corporate office? And same question if I work through a subcontractor for Wal-Mart.
LITALIENIt's going to be whoever employs you. If it's the local franchisee who employs you then that is who you should be talking to about employment issues. If you work for a third party in a temporary agency then, you know, that's your employer. That's who you should talk to. So, you know, it really -- trying to put McDonald's in the place of the franchisee as the employer in the local level, it's a little bit of a struggle from the standpoint that they have no eyes on the employee. They have no eyes on the store. They have no eyes on the day-to-day activity, including the customers who are coming in and out.
LITALIENAnd yet to say that they have responsibility or liability, even to assert that the CEO of McDonald's pay relative to workers, well you've got to be talking about the workers at McDonald's because that's who their employees are. Not the workers at the local franchise level. That's a separate independent business, ABC, LLC. You, I or Michael could own that business. Those are our workers and we're the ones that make those decisions. Saying McDonald's has some direct response to that is overreaching at minimum.
GOLBECKWilma, this sounds like Ben's actually gotten at the heart of the issue that the NLRB looked at this week, who are these people working for? And it sounds like the general counsel has said at least in some of the complaints that they've brought forward that they are working for McDonald's, the parent corporation in addition to the franchises.
LIEBMANWell, what they're arguing is that the parent corporation shares or co-determines the terms and conditions of employment. And I believe what the case will set out to prove is that McDonald's, through its various systems of control that are in place, through the franchise agreement, through various operating manuals, through various practices, through business consultants that visit the franchisees on a regular basis, or mystery shoppers that go and look at the way work is being done, through instructions that are sometimes given by these business consultants to workers, that they have a -- they play a part that they have some control over how the work is performed, the services are delivered, the food is made, the customer service practices.
LIEBMANAnd that they -- through this McDonald's system and its complex control mechanisms that are put in place with the ability to impose sanctions if the controls are not met with, that through this complex process that McDonald's has that they leave its -- their franchisees very little autonomy in some of these areas of employment.
LIEBMANTo go back to address what Ben said, I don't think this is a question of some clandestine effort. This is, whether intentional or not, the clear consequence of these practices franchising and some of the other practices is that they limit the ability of the -- either the franchisee, the subcontractor or whatever, to be able really to depart very much in the way that they employ people they manage the work because of the systems put in place by the lead firm.
GOLBECKWe're going to take some calls now. If you'd like to join us you can call 1-800-433-8850 or drop us an email to email@example.com. Let's start with Paul in Annapolis, Md. Paul, you're on the air. Go ahead,
PAULOkay. Thank you for taking my call. I learned in a Harvard business review course that the number one business of McDonald's is real estate. If this law is taken up in whatever happens with it, what would be the impact on other property owners who sublet their property to other individuals? Would a hotel be responsible for the activities that goes on in the hotel? Is there some liability to that?
GOLBECKThanks for your call. So this maybe sounds like it's getting again to the who's-the-boss question. Ben, do you have a thought on this one?
LITALIENWell, I'm not sure the ownership stake in the real estate holdings throughout the McDonald's chain is in play here in this discussion. I haven't seen or read anything that would indicate that that's part of the thinking. You know, the fact of whether McDonald's owns the land and the building and, you know, has a lease or otherwise with a franchisee operating there is part of what, you know, NLRB's position is.
GOLBECKLet's take another call from Octave in Washington D.C. Octave, you're on the air. Go ahead.
OCTAVEYes, hi. Listen, I want to react to this guy who just spoke a few minutes ago. I think his name is Ben. I think this guy is delusional. I mean, he's thinking that -- I mean, all these corporations, they actually care about anybody. All these corporations, franchisee, corporation, McDonald or anybody else -- they in the business to make obscene profit. They could care less about anybody else. I mean, for him to go out and defend them and to the guy who thought, oh, we're in the free market, this is a free market, this is a free market. So pretty much like carte blanche to these people to go out and extort money -- they extort hard-earned money from people in order to enrich themselves. This guy should be -- I mean, he should be ashamed of himself. That's what I want to tell him.
GOLBECKLet me get Ben to respond, Octave. Thanks for your call. Ben? Delusional?
LITALIENPossibly, possibly. I've been called worse, unfortunately. Well, certainly, every business that operates has to account for itself and should operate within the law in every way, shape or form. So -- and I certainly wouldn't say, because we're a free market that it's a right for anyone to extort anyone. But what I would say is that franchising provides individuals an opportunity to have a business ownership with shared risk under a common brand. And the fact is that many of those individuals would not go into those businesses on their own without the tools, the resources and the support that the franchisor provides.
LITALIENYou know, we've talked about, you know the greedy corporate -- and I think you refer to that in your comments -- the fact is, franchisees are not McDonald's Corporation. They're individuals that you do business with in your local community. They're individuals that own one to three locations. The majority of the 700,000, 800,000 businesses out there are owned by an individual with one to three locations. That's who you're doing business with. They have a license to use McDonald's brand. McDonald's has a requirement under federal law to protect that brand, because you can't have a franchisee down the road who doesn't follow the brand standards.
LITALIENIf they do, your business will be impacted. Your sales will go down. People will not come to you for the very reasons that the panelists here have talked about today, the consistency you expect. I'm looking out the window at Potbelly Sandwich. If I walk into that location and they're serving an unapproved meat, they take longer than would be expected, they charge me more than I've come to expect -- if they don't follow systems and standards, I'm not going to go back, not to that one but to the next one I see, which may be the one you own.
LITALIENFranchisors have to protect their brand. It's the systems that do that, not having any modicum of control legally or otherwise over the employment practices at the local level.
GOLBECKIf you've called, please stay on the line. If you'd like to join the conversation, you can call us at 1-800-433-8850. We'll continue this conversation after a short break. I'm Jen Golbeck and you're listening to "The Kojo Nnamdi Show."
GOLBECKWelcome back. I'm Jen Golbeck from the University of Maryland sitting in for Kojo Nnamdi. I'm talking about McDonald's, labor and franchises with Ben Litalien, Michael Wasser and Wilma Liebman. You can join the conversation by calling 1-800-433-8850.
GOLBECKWe have an email from Scott who says, "I'm a franchisee of a national pizza chain, with stores in the Northeast. In that market, we compete for workers with many independent pizza businesses that pay their employees in cash and are not subject to employment tax, workers' compensation and the like. I'm curious about the panel's position on how that impacts wages." Ben, I'll let you go first and then Michael next.
LITALIENWell, it highlights a really important factor regarding franchising and its transparency. The fact is, as a franchisee with a license from a -- in this case, a national franchise brand, you're required to follow all local and federal laws to operate your business. And so it is a fact that many franchisees out there choose to take the high road -- to take Michael's comment --and choose to be a franchise and not to operate independently where, you know, certainly the opportunity for, you know, paying cash and underreporting of employment and wages and whatnot can take place. Franchisors have no tolerance for that.
LITALIENTheir brand is going to be impacted if it happens. And so, you know, yeah, I think it is one of the stalwart components of the franchise model, creating transparency at the franchisee level.
GOLBECKMichael, what are your thought?
WASSERWell, certainly we -- I certainly believe that, you know, regardless who the employer is, they need to be following the laws of the land. In terms of competing against them, I mean, the market's two ways, right? It's a labor market, but there's competition for workers that employers have to compete for them. And I think actually, for many of these franchisees to have McDonald's or whoever it be, the parent company, take on and really embrace the responsibility as a joint employer can actually help them compete and help them, you know. A higher wage, however it's paid, it's going to be more lucrative to a worker.
GOLBECKLet's take a call from Matt in Union Bridge, Md. Matt, you're on the air. Go ahead.
MATTGood afternoon. Ben has made several comments about business and capitalism being alive in the U.S. and the free market and the competition and has pretty much presented these as if these are the driving force in this -- obviously, to stay in business and if you want to have national franchises in your state. But in doing so, that's always been the argument for what hasn't changed in society and what has finally brought about changes. Capitalism and free market was the reason why they didn't want food brought into Ireland in the 1840s and early 1850s to feed the Irish because they wanted the free market to take care of that.
MATTThe free market was supposed to address child labor laws and slavery in general. And it finally did, in terms of having our war. What we have in our society today is we have several laws that regulate how we feel capitalism should be tempered to keep in mind the humane factor of society and what's good for us all. And when the voice is only advocating capitalism, free market and competition, without taking these into consideration, that was the argument you had for segregationists in the South, who weren't against it, but they knew that if they let blacks into their restaurant, they would lose business.
MATTSo that was the reason not to do that.
GOLBECKWell, Matt, let me get...
MATTIt's usually take...
GOLBECKLet me get a response from our panel on this. Thanks for your call. Ben, I'll let you go first.
LITALIENThank you. Well, I mean, capitalism is critical. It's a critical part of our history. And it is tempered by all the methods that you have stated. And certainly I wouldn't advocate nor do I know other franchisors that would advocate that, you know, somehow we should, you know, not follow those guidelines and regulations that have been set in place to safeguard workers. They're appropriate. They work. And, you know, franchising should be the poster child for following them. So I am not trying to use capitalism or the free-market society to say we should overlook them, you know, go around them or otherwise not follow them.
LITALIENI think that is part of the level playing field. I think it is part of the fabric of this country. And, you know, I do advocate and happen to know from the franchisors that I've interacted with that they're very conscientious about following them.
GOLBECKWell, some of the issues that our caller, Matt, raised are actually issues that have been important from the founding of the National Labor Relations Board. And so I wanted to get a little bit of feedback and background from you on that, because I think a lot of people probably aren't aware of its history or makeup. So the National Labor Relations Board, the NLRB, was created by the National Labor Relations Act in 1935. That was amended in 1947. Can you talk to us a little bit about how businesses and employment practices have changed and how the Labor Board has adapted and what they're addressing?
LIEBMANSurely. Thank you. So of course the original law was enacted in 1935 in the midst of the Great Depression. It was part of Franklin Roosevelt's New Deal. It was in many ways viewed as a quintessential New Deal agency. After the second World War, as organized labor grew tremendously as a result of the enactment of this law, there was a reaction in 1947. Very significant amendments to the law were passed, called the Taft-Hartley Act. The law has had some amendments wince then, but those have been rather limited and discreet. And there has been no substantial Labor Law reform since 1947, despite several significant attempts to change the law.
LIEBMANThose have always ended up in legislative gridlock. There are rather deep divides in this country over this law and what it represents. So what has happened in the interim is, needless to say, business has changed dramatically since 1947 with global competition, propelled and enabled in part by radical technological change. Business practices have changed. The whole way of doing business has changed quite dramatically. And what we have seen quite a bit in the last 20, 30 years at least is dramatic changes in the way that corporations or businesses get workers to do their work.
LIEBMANSo what we've seen -- we alluded to this a little earlier -- is rather than direct employment relationships, what we've seen is a variety of business practices that have evolved, whereby the corporation in some ways doesn't employ people, but it contracts for services -- so again, whether this is outsourcing, subcontracting, insourcing using staffing agencies or leasing companies, or the rapid development of the franchise-business model. And one of the key issues that arises in these kinds of situations is who exactly is the employer? So this joint employer doctrine has been in play for a long time.
LIEBMANThere are other legal doctrines that sometimes arise as well. And the issue really is, who's responsible for adherence to the labor law or other workplace laws. Who's responsible, who's accountable? Who's responsible for adherence to the laws? Who's accountable for violations of the laws? In the case of employees trying to unionize, who comes to the bargaining table? Who really are you going to bargain with?
LIEBMANSo let's take the case of building owners that contract out janitorial services. The direct employer of the janitors would be a maintenance company or a janitorial company. But many times those workers who have unionized have said, as have their employers, that we don't really have the ability to do much in collective bargaining, because we don't really have the ultimate control. The building owners have the ultimate control.
LIEBMANAnd I think we would see a variation on a theme of this in the franchise situation, where the franchisees, particularly small ones, might say, well, we don't have much leeway here. We don't have much wiggle room to improve wages or working conditions or other benefits or whatever. But the argument will be, well, McDonald's has the ability through the control that it exercises and through the franchise agreements, et cetera, et cetera. So these issues really become critical in at least these areas in terms of accountability, responsibility and who, in the event of unionization, do you actually bargain with?
LIEBMANSince the law hasn't changed in all these years, the Board itself has tried to adapt to changing circumstances. And it comes up in other areas besides who's the employer. It comes up in a lot of areas where the business practices or what's going on with technology, et cetera, have put tensions on existing law and existing labor-law doctrines.
GOLBECKAnd this is certainly one of those cases.
LIEBMANYes, absolutely. And so the Board is struggling to figure out, how do you apply the law in a meaningful way so that the protections are real and not illusory. And I think what this all boils down to is, everybody understands the need for businesses to be able to be flexible and competitive if they're going to be able to create jobs. Everybody wants businesses to be able to create jobs. But not at the expense of workers' rights, worker's abilities to make a living wage to support themselves and their families, and to have a voice in the workplace as well.
GOLBECKSo we're low on time. We've got about a minute and a half left. But I'd like to get all of your 30-second responses to this wrap-up question, which is, the International Franchise Association had said that it will fight the McDonald's case all the way to the Supreme Court. How do you think it's going to play out? Ben, you first.
LITALIENWell, I don't think it'll be upheld. I think that the success of franchising, which has been documented for 70 years -- you know, Wilma says that it's due to changes in the economy, changes in the economics, changes in business -- franchising hasn't changed in decades, certainly, given FTC regulation in the late seventies. So holding McDonald's accountable for, you know, labor violations, making it a joint employer, would reverse decades of legal and regulatory precedents set by IRS, FTC, SBA and the states. So I don't think it'll stand up.
WASSERFast-food workers in the last year have raised the consciousness in this country about the need for higher wages and the need for better standards for workers in the service sector. I think that regardless what the legal outcome is, we are on the cusp of some very big changes and some very big gains for workers to have a say in this economy.
GOLBECKAnd, Wilma, you've got about 15 seconds. Your prediction, how do you think this will play out.
LIEBMANWith the last word? Well, I'm always hesitant to predict what the courts are going to do. But I would concur with what Michael just said, that this has already had a substantial impact in changing the conversation.
GOLBECKI'd like to thank all of my guests. Benjamin Litalien, founder of Franchise Well Consulting and Developer and Instructor of the Franchise Management Program at Georgetown University's School of Continuing Studies. Thanks for being here.
GOLBECKMichael Wasser, senior policy analyst of Jobs With Justice. Thanks for joining us.
WASSERYeah, thanks for having me.
GOLBECKAnd Wilma Liebman, former chair of the National Labor Relations Board and senior lecturer at Cornell. Thank you for joining us.
LIEBMANMy pleasure. Thank you.
GOLBECKAnd thanks to you for listening. I'm Jen Golbeck and this is "The Kojo Nnamdi Show."
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