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McDonald's labor ruling protects the franchise business model

Champagne bottles are likely popping ahead of the new year at McDonald's corporate headquarters following a big labor win for the fast-food chain and a setback for workers in the gig economy.

The National Labor Relations Board ordered the settlement of an Obama-era lawsuit that had attempted to hold McDonald's liable as a "joint employer" for labor violations by its franchisees. The case had threatened the profitability of the franchise model as worker advocacy groups looked to hold parent companies accountable for franchisee behavior. 

"The franchisor in general and McDonald's in particular wants to have minimum responsibility for what the franchisees do," Harley Shaiken, a labor relations professor at the University of California at Berkeley, told CBS MoneyWatch. 

"It's a blow to unions involved with franchisee workers, like the $15 an hour movement," Shaiken added of last week's NLRB ruling, the latest chapter in a years-long dispute over McDonald's and its responsibilities towards workers.

The decision is a blow to the Service Employees International Union, which has supported the "Fight for $15" protests since 2012. 

Workers claim they were disciplined and in some cases fired by McDonald's franchises in cities across the country for participating in protests calling for higher wages and a union. As part of the settlement, McDonald's franchisees must set up a fund of $250,000 to pay out the workers involved in the case.

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The Fight for $15 and unionization campaign vowed in an emailed statement to "forcefully appeal the decision."

Specific to McDonald's, the NLRB's ruling helps protect a business model employed across multiple industries. While the Golden Arches and other fast-food chains dominate among global franchise models, other brands include Planet Fitness, 7-Eleven and the UPS Store, and hotel chains like Holiday Inn and Motel 6. 

The case also holds possible implications for an array of companies that rely on franchising and contracted work, such as janitorial services, trucking, construction and warehousing. 

"When it comes to franchisees and franchisors, fast food is the most common, but there are many other industries where you find this type of business relationship," said Edgar Ndjatou, executive director at Workplace Fairness, an advocacy group.

But the issue also extends beyond the traditional franchise model, added employment attorney Drew Lunt. "The Ubers and Lyfts of the world are fighting this battle of how much they are liable for employees, that's the bigger context." 

"This is a political issue about whether or not employees can hold McDonald's liable for the actions of their franchisees," said Lunt, president of the Lunt Group. "The joint employer issue will only come back it a circuit court overrules the board — that would bring life back to the issue."

A federal court could ultimately overturn the NLRB, but the process of getting there could be lengthy, and possibly a moot point. That's because the NLRB is dominated by members of the president's political party, and therefore subject to a possible about-face every four years. 

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"Depending on the outcome of next year's election, it could be another three-to-five years before this case has any resolution," said Lunt.

"The shortest route is a Democratic victory next November, in which case the composition of the NLRB would likely change," Shaiken said.

Of the roughly 14,000 McDonald's restaurants across the country, more than 90% are operated by franchisees that McDonald's contends are independent businesses that call the shots when it comes to hiring and pay. 

A federal appeals court in California in October found McDonald's did not exert enough control over franchise workers to be considered a joint employer liable for their pay. Several other lawsuits are in the works that seek to hold the chain responsible for violence against workers or sexual harassment of workers.

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