Judge Rejects Settlement In Key Franchising Case

A federal administrative law judge has rejected a proposed settlement between McDonald’s and the government. The case poses a threat to the viability of the franchise business model. The government contends that McDonald’s is liable for many labor-law violations committed by its franchisees. Such a finding would expose companies that rely on the franchise model to enormous liability. The key question is whether McDonald’s is a joint employer of the workers hired by its franchisees, meaning it controls working conditions. In addition to making McDonald’s liable for violations by franchisees, a joint-employer finding would force the company to bargain with workers who formed a union. The trial began in 2015. In January, the new general counsel of the NLRB, a Trump appointee, was granted a 60-day stay to negotiate a settlement with the company, although the trial was days from ending. The proposed settlement was presented in March. The judge rejected it on July 18, saying it was not “a reasonable resolution based on the nature and scope of the violations alleged and the settlements’ limited remedial impact.” She said McDonald’s refused even to guarantee that its franchisees would abide by the terms.