For the past few decades, most corporations have obeyed an unspoken commandment: Thou shalt not employ, directly, any menial laborers. That woman who takes your order at a chain restaurant? Probably works for a franchisee. Fellow who sorts your office mail? His boss, in all likelihood, is a subcontractor. Janitor who cleans up after you leave work? An “independent contractor.”
As a general rule of thumb, corporations are reluctant to assume responsibility for anyone liable to earn less than, say, $25,000 per year. Treating bottom-tier workers decently by providing them, for instance, health care and pensions, or allowing them to unionize, is expensive. But treating them indecently by denying them such things is cruel and often illegal, inviting lawsuits and bad publicity. Better to make them somebody else’s problem.
It’s a phenomenon I like to call (with apologies to Karl Marx and Friedrich Engels) “the devolution of the proletariat,” and it just suffered — hallelujah! — a major setback. Richard F. Griffin, Jr., general counsel of the National Labor Relations Board, has declared McDonald's Corp. jointly responsible for the welfare of its franchisees’ burger flippers. In rejecting the legal fig leaf that these workers aren’t employed by McDonald's — merely by the independent contractors who’ve purchased a McDonald's franchise — Griffin is holding that $28-billion corporation financially liable for 43 claims of labor-law violations filed with the NLRB that he deems to have merit. (Another 64 await investigation, and an additional 68 have been tossed out).
The NLRB's claims against McDonald's typically allege that an employee has faced illegal retaliation (reprimands, reduced hours, outright firing) for trying to form a union or even just discussing working conditions with other employees. NLRB’s general counsel acts as a sort of prosecutor, and the next step ordinarily would be exploration of a possible settlement. But McDonald's immediately announced it would “contest this allegation in the appropriate forum,” i.e., with the NLRB, before an administrative law judge, or in the federal courts. In all likelihood, it will be all three.
McDonald's will tell you until it’s blue in the face that it bears no responsibility for the employees of its franchisees. Its franchising contract states, “Franchisee and McDonald’s are not and do not intend to be partners, associates, or joint employers in any way.”
But wage theft lawsuits filed by McDonald's workers this past March in New York, Michigan, and California allege that McDonald's maintains a lot more control over franchisees’ workers than it’s willing to admit. McDonald's builds websites where job seekers can apply to work for franchisees. It requires franchisees to install computer hardware and software that allows the corporation to dictate individual employees’ work hours and keep track of worker productivity. The lawsuits even allege that McDonald's has fired individual franchisee employees.
If these allegations are true, then any notion that McDonald's franchisees act as sole employers would appear to be fiction. Griffin’s determination “is important,” says Catherine Ruckelshaus, general counsel at the nonprofit National Employment Law Project, “because it shows that franchise operations are not necessarily sacrosanct; the corporations that decide to franchise their businesses may be held to account … if there is sufficient control.”
"The franchising community needs to take stock of the separation of authority that needs to be present to create a contractor vs. an employer relationship."'
The International Franchise Association, which represents franchisers, declared Griffin’s finding “wrong and unjustified.” No surprise there, because IFA represents franchisers (i.e., McDonald's Corp. and its ilk). Meanwhile, Robert Purvin, chairman of the American Association of Franchisees & Dealers, said in an e-mail, "Obviously, the AAFD has been arguing for years that franchiser control of franchisee conduct places great stress on the validity of an independent contractor relationship, such that franchise owners (and their employees) may well be deemed to be employees (or indentured servants) of their franchisers. So it sounds like this is a shoe I have expected would finally drop. The franchising community needs to take stock of the separation of authority that needs to be present to create a contractor vs. an employer relationship.”
Maintaining an arm’s-length distance from the grunts through franchising, subcontracting, and independent contracting allows corporations to more easily deny responsibility for cost-saving, illegal (or merely inhumane) treatment of low-wage workers. A 2008 NELP survey conducted in New York, Chicago, and Los Angeles found elevated levels of illegal wage theft, overtime violations, and off-the-clock work in home health care, restaurants and hotels, and building security — all sectors that have come to rely heavily on outsourcing. Hotel chains, for instance, which half a century ago directly employed most of the people who worked in them, today employ fewer than 20% of them.
A separate NELP report found that outsourced janitors earned seven percent less than their directly-employed peers; port truckers, 30% less; and agricultural workers, 40% less. Food services workers, it found, made $6 per hour less if they drew their paycheck from a franchisee or subcontractor.
Boston University economist David Weil, currently on leave to serve as administrator of the Labor department’s wage and hour division, terms this devolution “the fissured workplace.” In a book of that title published earlier this year, Weil wrote that the government’s failure to adapt to this structural change “means that lead businesses are allowed to have it both ways. Companies can embrace and institute standards and exert enormous control over the activities of subsidiary bodies. But they can also eschew any responsibility for the consequences of that control.”
The NLRB general counsel’s new tack is an encouraging sign that government is finally starting to wise up about franchising. There are stirrings, too, of new responses to other types of workplace fissuring:
- In 2012 the Labor department made use of a “hot goods” provision in the Fair Labor Standards Act to seize blueberries from Oregon growers whose subcontractors paid sub-minimum wage. Unfortunately, the seizure became a conservative cause célèbre, prompting Congress to require consultation with the Department of Agriculture before any future seizures.
- In 2004 Massachusetts stiffened penalties for businesses — typically in the construction industry — that avoided paying worker’s compensation and other expenses for de facto employees mis-classified as independent contractors.
- Federal contracting is another route to regulating the fissured workplace. Government-funded Amtrak, for instance, has started requiring bidders to disclose wages and benefits, and won’t accept bids from companies that set these below a certain level.
The best worker protection, of course, would come through extending union membership to the fissured workplace. By holding McDonald's accountable for franchisees’ (routine) union-busting, the NLRB general counsel’s new strategy opens the door a crack to organizing outsourced labor. But remember that Wal-Mart has managed to prevent its U.S. stores from unionizing even though it’s the rare corporation that employs its low-wage workers directly. Reviving labor unions will require more ambitious changes, and in all likelihood, the intervention of Congress. Still, the NLRB general counsel’s action is an excellent start.