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NLRB law judge rejects proposed settlement in McDonald’s joint employer litigation

By Lisa Milam-Perez, J.D.

An NLRB administrative law judge has rejected a proposed settlement that would have resolved Board charges that McDonald’s USA, LLC, as a joint employer along with its franchisees, committed unfair labor practices in response to employees’ involvement in Fight for $15 protests in 2012 and 2013. The case was to be a key litmus test of joint employer status under the Obama Board’s push to hold related entities accountable as joint employers for labor law violations—applying joint employer principles to the franchise business model, in particular. Then-General Counsel Richard Griffin signaled he would pursue charges against the national restaurant chain alongside the 30 or so franchise restaurants across the country alleged to have interfered with employees’ rights under the Act and to have discharged workers for exercising those rights. However, the Trump NLRB under new General Counsel Peter Robb retreated, hoping to resolve the dispute without addressing the essential question of the corporation’s status as a joint employer. But the Board ALJ wouldn’t have it (McDonald’s USA, LLC, July 17, 2018, Esposito, L.).

The ULP charges. The underlying consolidated complaint arose out of 61 unfair labor practice charges filed in six NLRB regions alleging 181 various unfair labor practices committed by 31 separate restaurant franchisees. Before the merits of those charges would be considered, though, the ALJ was to grapple with the threshold question of whether McDonald’s USA LLC, the national franchisor, was a joint employer alongside the franchisees, having ostensibly coordinated and directed the allegedly unlawful conduct carried out by the franchisees in response to employees’ protected, concerted activities during Fight for $15 protests.

Delaying tactics. Several years of contentious litigation ensued, including 150 days of hearings—”the largest case ever adjudicated by this agency, and the longest hearing the agency has ever conducted,” the ALJ noted, and requiring federal court litigation in six different venues and appointment of a Special Master. Complicating matters was the recalcitrance of the respondents, who fought discovery proceedings every step of the way. “From the moment the first witness took the stand in this case on March 14, 2016, the evidentiary issues raised by McDonald’s and the Franchisee Respondents have simply been extraordinary,” she noted. Prior rulings reflected similar impatience at the deliberate attempts to prolong the presentation of the case.

NLRB General Counsel Peter Robb would then seek a stay in the case, arguing the law was in flux following the Board’s December 2017 Hy-Brand Industrial Contractors, Ltd, decision, which had reversed the much-maligned Browning-FerrisIndustries of California, Inc., decision and its expansive definition of joint employment. The General Counsel indicated he would pursue a settlement, and an informal agreement was reached days before the record would have closed, over the strenuous objections of the charging parties. (Actually, it was a series of 30 informal agreements, each addressing the allegations against one franchisee, and executed by that franchisee and McDonald’s. The agreements were to serve as a “template” for the settlement of other McDonald’s cases which had not been consolidated here.).

The law judge’s reasons for denying approval. After analyzing the Independent Stave factors (viewed through the particular lens of UPMC, a 2017 decision addressing settlement standards in the joint employer context), the ALJ denied the General Counsel’s motion for approval. A few key takeaways from the ALJ’s ruling:

  • The risks of litigation at the current stage of the proceedings, one of the Independent Stave factors, fell squarely on the side of rejecting the settlement. The case was just about over, she noted, adding that “the General Counsel’s decision to pursue a settlement, and accept the Settlement Agreements discussed above, literally days before the close of the monumental record in this case is simply baffling.”
  • The General Counsel had argued a stay was necessary in order to evaluate the impact of Hy-Brand (and its overturning the Browning-Ferris joint employer standard). Yet the complaints in the case were issued pre-Browning Ferris, so the previously existing standard for determining joint employer status applied. So Hy-Brand, or the subsequent vacating of Hy-Brand, should not have come into play as a basis for pausing the case.
  • Twenty or so discriminatees stood to receive back pay (or front pay), at a cost of $172,000 to the respondents. (Three workers were fired; another 17 received one-day suspensions, were sent home early, or had their work hours cut.) But this relief was inconsequential, the remedial impact slight, in light of the larger question at stake—the joint employer status between McDonald’s and its franchisees—and the deal disavowed any admission of joint employment. Wrote the ALJ: “The circumscribed involvement of McDonald’s in the informal Settlement Agreements’ remedies does not begin to approximate the remedial effect of a finding of joint employer status.”
  • Although a $250,000 settlement fund set up by McDonald’s purports to cover any future violations, it would only cover Section 8(a)(3) violations involving a monetary remedy, yet the “overwhelming majority of the multitudes of unfair labor practices alleged involved either statements or policies and practices designed to inhibit the exercise of Section 7 rights by employees at the Franchisee Respondent locations, as opposed to actual retaliation against specific individuals precipitating an individual remedy,” the ALJ noted. Also, fund disbursements are only available—at McDonald’s discretion—if a franchisee commits a violation of precisely the type alleged in the underlying complaint (meaning there would be no recourse for an employee who the complaint had alleged had her hours cut, but later is unlawfully discharged). And while McDonald’s argued this was a common feature of Board settlements, “that is definitively not the case,” the ALJ said.
  • The deal came with no guarantee by McDonald’s that the franchisees would perform; it states that the corporate entity was not responsible for any remedy (this, despite the settlement fund provision noted above). The General Counsel explained that the agreement contained no guarantee because McDonald’s would not agree to one. “This may be factually accurate, but it is not a compelling argument for the Settlement Agreements’ approval,” the ALJ said. Nor was she convinced, as the General Counsel argued, that McDonald’s had no authority to ensure the franchisees would effectuate the relief granted. As she noted, “such considerations have not precluded the imposition of joint and several liability on joint employers.” At any rate, she cited a litany of provisions in the McDonald’s franchise agreements that clearly evidenced McDonald’s corporate control over its franchisees, suggesting the corporate entity could strong-arm franchisee compliance here.
  • Although the consolidated complaint did not allege that McDonald’s committed unfair labor practices, the General Counsel had “adduced a veritable deluge of evidence regarding McDonald’s response to the Fight for $15 campaign, some of which implicates” the conduct alleged here. Given the theory of the case—that McDonald’s and the franchisee respondents engaged in a coordinated effort to effectuate a “mutual interest in warding off union representation” at the franchisee restaurants,” the ALJ was reluctant to let the corporate entity off the hook.
  • The agreement offered no mechanism for issuing an enforceable Board remedial order. What it did offer, by way of enforcement in the event of default, was a good deal of confusion as to McDonald’s obligations under the deal (vis a vis its franchisees), and there appeared to be no meeting of the minds on that front. “General Counsel and McDonald’s have made so many conflicting statements regarding McDonald’s obligations under the proposed settlements that there is significant doubt as to whether they have actually reached agreement.”
  • The special notice provided for in the agreement contains “non-admissions” language stating that it does not constitute an admission that McDonald’s is a joint employer. Yet the NLRB has held that non-admissions clauses should not be included in a Board notice to employees “under any circumstances.”
  • Any promise of finality was illusory, as “the proposed informal settlements’ unusual and complicated form and enforcement mechanisms, coupled with the parties’ evident confusion and history of antagonism, virtually guarantee that the settlements will not definitively end the case.” Moreover, the General Counsel’s stated rationale justifying these the “significant shortcomings” in the proposed settlement “are inadequate and inconsistent with Board policy and practice.”
  • The agreement was rife with procedural oddities that didn’t sit well with the ALJ. For example, it said the General Counsel will move for an order approving withdrawal of the Consolidated Complaints “no later than ten days” after approval. Typically this happens only after compliance is complete. “Overall, given the unprecedented and enormous resources expended in connection with this case,” the ALJ wrote, “an informal settlement which provides for the anomalous withdrawal of the Consolidated Complaint in 10 days without full compliance is manifestly unreasonable.” And the General Counsel offered no explanation for why he chose to abandon the common practice here, “particularly where 30 separate Settlement Agreements will require the efforts of six Regions’ compliance personnel.”
  • The relief contained in the proposed settlements did not differ in any material way from early offers to settle made by the franchisees prior to the opening of the hearing. McDonald’s had stated on the record that some of the franchisees were ready to resolve the unfair labor practice allegations against them without an admission of joint employer status, but the General Counsel rejected their proposals. Thus, the settlements “[didn’t] accomplish anything more than what ostensibly could have been achieved prior to the start of the three-year hearing in this matter.”

Ignored the joint-employer issue. At bottom, though, was this: As the General Counsel had stated, the purpose in initiating this case was to obtain a finding that the McDonald’s corporate entity was liable as a joint employer for the alleged unfair labor practices carried out by its franchisees, and “to clarify the relationship between franchisor and franchisee” in the context of Board law regarding joint-employer status. Indeed, the overwhelming majority of the evidence and hearing presentation in the case was directed at that issue. Given that ultimate purpose, and the scope of the allegations and the litigation in this case, the settlement agreement “is paltry and ineffective.” Therefore, the ALJ held that approval of the proposed settlement agreements was not appropriate.

What now? As noted, the ALJ had chastised the respondents’ dogged efforts to delay the case. The speculation was that McDonald’s had been hoping that the impending presidential election might usher in a more business-friendly labor board, and it would fare far better if it could stretch out the litigation. Despite the ALJ’s ruling, that strategy will likely pay off in the end. An appeal to the Republican-controlled NLRB will surely look more favorably upon the informal agreement, even though it dodges the central issue of the joint-employer status of perhaps the nation’s most iconic franchise, especially as it undertakes rulemaking on this very question.