Last year, a group of McDonald’s employees in California claimed they were owed overtime wages and sued the McDonald’s corporation. Instead of suing the individual franchise owner, they sued the corporate franchisor and walked away with a $3.75 mil. settlement. Those days may soon be over, as The Department of Labor has begun to turn back the clock away from the Obama-era employee friendly policy and towards a pro-business, traditional approach.
The expansion of American franchises has long fueled job growth with employment in franchised businesses increasing 3.4 percent since 2012, totaling an estimated 7.88 mil. employees working for a franchise establishment in 2017. But who is responsible for all those workers?
Labor Secretary Alexander Acosta delivered a clear answer early June 2017 in a statement withdrawing the Obama-era guidelines that suggested franchisor corporations should be held more accountable for franchise workers. Although administrative guidelines are not binding law, the removal of the guidance does mark a change in policy back towards holding only individual franchise owners responsible for their employees. Judges and lawyers can no longer cite the former, more liberal Department interpretation of “employer” in support of holding corporate franchisors, like McDonald’s, responsible for unit franchisee’s employee wage complaints.
Although the removal of the guidance clarifies this administration’s position on the issue, various district courts’ rulings on this issue currently remain, creating a void in guidance for franchisors trying to figure out what they must do to avoid responsibility for their franchisee’s, or in some cases their master-franchisees’ employees.