How Will NLRB's 'Joint Employer' Ruling Affect C-Stores?

Industry franchisors waiting for shoe to drop after McDonald's decision

Jeremy Seth Davis, Freelance writer

National Labor Relations Board (NLRB) (CSP Daily News / Convenience Stores)

WASHINGTON -- The convenience store industry is reacting to last week's decision by the National Labor Relations Board (NLRB) that McDonald's Corp. can be held liable for labor and wage violations in cases of labor infractions by its franchise owners.

The ruling, which Oak Brook, Ill.-based McDonald's will challenge, identifies the franchisor as a joint employer of workers in franchised locations. This decision upends decades of legal precedents that protected franchisors from lawsuits because franchised locations operated as separate legal entities.

If the decision withstands potential court challenges, it would provide workers at convenience store franchises with an ideal corporate target to sue for damages, and it would incentivize more labor disputes. The ruling may also allow workers at these franchised locations to organize unions.

"We think [the NLRB's decision] is a horrible precedent," Lyle Beckwith, senior vice president of government relations at the National Association of Convenience Stores (NACS), told CSP Daily News. "We think it would absolutely adversely affect convenience stores that franchise."

The precedent is especially problematic for large c-store companies like 7-Eleven Inc., which already faces lawsuits claiming labor violations. In July 2013, five single-store franchisees filed a suit against 7-Eleven claiming that the franchisor "intentionally misclassifies its store operators as franchisees in order to increase corporate profits and avoid paying overtime, medical and pension benefits, FICA and other state and federal employer taxes."

7-Eleven has also been hit by a series of lawsuits from franchisees alleging that the company seized their stores by inventing bogus claims of franchisee fraud, and then resold the stores to new franchisees willing to pay the company higher fees.

Dallas-based 7-Eleven declined to comment on this issue.

"No franchise is safe," Paul Millus, of counsel with law firm Meyer, Suozzi, English & Klein, P.C., who regularly provides advice to employers and employees concerning their rights and obligations in the workplace, told CSP Daily News. "The more control is exerted, the more consistency you bring to your different locations--and that's what customers expect. But in doing so, you open yourself up to claims of an employer-employee relationship."

The NLRB's decision would have a far-reaching effect on the way that c-store franchises operate and conduct labor agreements with franchisees and their employees. The ruling would create a new dynamic, in which c-store franchisors would be compelled to develop new rules and controls to monitor franchisee conduct of labor guidelines.

"If there is any way that [the NLRB] can set precedent by finding a employee-employer relationship, I think they will do so," Millus said. "This is the best shot for unions to pursue this issue, and I think they will do so with vigor."

McDonald's senior vice president of human resources, Heather Smedstad, said, "McDonald's also believes that this decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the United States."

The precedent would affect broader strategy decisions that c-store franchises consider, such as whether the IRS would treat employee compensation as legitimate expense deductions for franchisees under the new decision.

"The reality is this is probably years before this will be resolved," said Beckwith. He added that there is little activity that NACS can engage in "until this gets through the courts."

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