Portside

The wage theft lawsuits filed against McDonald’s last week in New York, Michigan and California threaten to breach a wall that for decades has protected fast-food corporations from the demands of minimum wage workers.

The lawsuits accuse McDonald’s restaurants of various illegal labor practices. Many fast food workers, it’s alleged, have been taken “off the clock” either while working or while waiting on site to start or complete a shift; either way, federal law requires that the workers be compensated for their time. Another allegation is that many of these low-wage workers have gotten the cost of their uniforms deducted from their paychecks, effectively reducing their pay to below the federally or state-mandated minimum wage. Yet another allegation is that many fast food workers have been denied legally-mandated overtime pay.

What’s unusual here aren’t the claims of labor law violations, which are common enough, but rather, who’s being blamed. The wall that fast food workers hope to blast through with these class-action suits is the franchise system. All of the lawsuits name McDonald’s itself as a defendant, even though most of the targeted restaurants are owned not by McDonald’s but by McDonald’s franchisees.

Starting with Howard Johnson’s in the 1930s, franchising enabled fast-food companies largely to get out of the food business. Owning and operating the restaurants was mostly left to franchisees – usually mom and pop businesses that paid McDonald’s or Burger King or Dominos for the right to brandish their corporate trademark and prepare food according to their specifications. Today, most fast-food workers don’t work for McDonald’s or Burger King or Dominos; they work for franchisees licensed to sell their products.

Practically speaking, franchising makes it very difficult to hold fast-food corporations accountable for most labor violations that occur in restaurants bearing their name. Those aren’t our employees, the corporations can say; you got a problem with how burger-flippers are treated, take it up with their franchisee bosses. In franchise agreements – the contracts prospective franchisees must sign on a take-it-or-leave-it basis – franchisors explicitly disavow such responsibility. The McDonald’s contract, for instance, stipulates that “Franchisee and McDonald’s are not and do not intend to be partners, associates, or joint employers in any way.”

In theory, plaintiffs could get around this obstacle by arguing that franchisors – even if they don’t tell franchisees how to treat employees – dictate so much else of what franchisees do, including what hours restaurants must stay open and even how to answer the phone, that franchisors create the circumstances that lead to labor abuses.

In general, fast-food franchising agreements have gotten so absurdly burdensome that franchising today is frequently compared to sharecropping. As with sharecropping, franchising is often unprofitable: A 2007 study commissioned by franchisors found that franchisees had higher failure rates on Small Business Administration loans than non-franchisees. But the unprofitability of any given franchisee needn’t worry his or her corporate master, because the franchisor takes all its fees “off the top.” Even a high failure rate poses little problem so long as other prospective franchisees are lined up to take over failing restaurants.

In practice, judges have been reluctant to assign fast-food corporations any indirect responsibility for the employment practices of their franchisees. To make McDonald’s or Burger King or Dominos a target, the plaintiff needs to demonstrate that the franchising arrangement in question is a sham. If a McDonald’s or Burger King or Dominos exercises more direct control over its franchisees’ workers than the franchise agreement lets on, then these companies may be held directly responsible for violations of federal labor law. That’s what the lawsuits filed last week aim to do.

Judges have been so quick to dismiss previous lawsuits of this type that plaintiffs lacked much opportunity to ferret out supporting evidence through the discovery process. So this time, lawyers for the fast food employees assembled much of the evidence in advance. What this evidence suggests (as described in the legal complaints) is that McDonald’s is a lot more involved with its franchisees’ low-wage workers than was previously known. (In a statement, McDonald’s said it was “committed to undertaking a comprehensive investigation of the allegations and will take any necessary actions.”) For McDonald’s, the urge to control what goes on in McDonald’s restaurants may have preempted its legal imperative not to be “joint employers.”

What follows are some of the corporate practices the lawsuits cite in arguing that fast food workers are, in effect, employees not only of McDonald’s franchisees but of McDonald’s itself. Please note these are as yet only allegations by one side in a lawsuit. But the allegations are pretty interesting.

HR bot 

McDonald’s franchisees, the lawsuits say, are required to install assorted McDonald’s-supplied computer hardware and software that compiles data about sales, inventory, and labor costs. The computer calculates how many people the franchisee must hire. It’s also used to set work schedules for individual employees and keeps track not only of when each employee goes on and off the clock but even how long it takes each to fill every customer order. If a store manager goes back into the system to reduce an employee’s recorded number of hours worked, the fact of that alteration (a red flag for wage theft) will be recorded. All this information is available on a daily (and possibly hourly) basis to McDonald’s.

You’re fired 

Firing is typically done by the franchisee, but fast food workers allege that McDonald’s itself can and has fired franchisee employees.

Web recruiting 

McDonald’s maintains in every state a Web site that list job openings not only at corporate-owned stores, but also at franchisee-owned stores. Potential hires are then invited to apply online. The Web site, the lawsuits say, assigns each job candidate a score before turning his or her information over to the franchisee.

Remote-control evaluation

McDonald’s, the lawsuits allege, keeps track of how often franchisees conduct wage reviews, and provides a form to use in these wage reviews.

Labor cost percentage targets 

McDonald’s, according to the lawsuits, calculates these for each franchisee-owned restaurant and conveys the targets to the franchisee (exactly how is never explained).

“Plan to Win.”

As part of this McDonald’s program, so-called “business consultants” (actually McDonald’s employees) are assigned to keep track of what’s going on at each restaurant, whether it’s franchisee- or company-owned. The business consultants pore over data input and make frequent on-site visits. According to the lawsuits, these consultants instruct franchisees on all aspects of the business, including personnel practices.

What all these claims suggest is that McDonald’s, even though it takes its money off the top, nonetheless cares a great deal about whether its franchisees clear a profit, and tries hard to help them do it. In that sense, the company is perhaps kinder and gentler than it’s usually given credit for being. But if these allegations are true, then McDonald’s has waded so deeply into personnel issues as to make franchisees (and therefore their low-wage workers) de facto employees. That would make McDonald’s, in a more important sense, not kind and gentle at all, but rather complicit in countless labor violations that have become, fast food workers say, routine. And if it turns out McDonald’s franchising is a sham, we may yet find out that other fast food corporations are similarly pulling our leg when they claim that franchisees are solely responsible for whatever befalls their low-wage workers.