Labor ruling deals big blow to McDonald's

A decision by the National Labor Relations Board has potentially super-sized McDonald's (MCD) financial and legal troubles, and also could spell trouble for the entire franchise industry.

The general counsel of the NLRB, a federal agency tasked with protecting employee rights and guarding against unfair labor practices, has instructed the federal agency's regional offices to treat McDonald's as a co-employer of the workers at its franchised operations.

If upheld, the decision could make the restaurant chain liable for legal complaints against its franchises, which the company says operate independently. Those complaints includes multiple class actions for alleged "wage theft," and the ruling could give employees and labor activists who are seeking higher pay for workers more leverage to press their demands.

McDonald's and other fast-food restaurant have faced global protests by workers demanding wage increases. In May, plaintiffs filed seven federal lawsuits in California, Michigan and New York claiming that franchise owners or McDonald's itself did not pay for overtime due to them, failed to reimburse workers for purchasing and cleaning uniforms, and forced employees to work off the clock.

Attorney Micah Wissinger, a partner with law firm Levy Ratner representing New York workers in the wage suit against McDonald's, said the NLRB's ruling will force the company to be accountable for its franchises' labor practices.

"Individual franchise operators have very little autonomy to control the workplace conditions," said Micah Wissinger, in a conference call on Tuesday to discuss the NLRB's decision. "McDonald's can no longer get away with reaping all the profits and benefits while saddling their franchisees with [employee problems]."

Employees of the fast-food giant have argued that McDonald's closely controls its franchisees, including owning the physical locations, monitoring franchises and directing key aspects of their operations. As a result, labor advocates say that although McDonald's did not set pay, it ran all other parts of franchises, leaving individual restaurant owners little leeway in setting wages or benefits.

According to Catherine Ruckelshaus, general counsel and program director for the National Employment Law Project, under the Fair Labor Standards Act franchisors like McDonald's can be held responsible for worker conditions at franchised organizations. "The standard is whether they determine or co-determine the working conditions," said Ruckelshaus, during the conference call. "The standard is generic and not specific to franchise structures."

McDonald's did not respond to an interview request from CBS MoneyWatch. The company is expected to appeal the ruling to an administrative law judge.

If it stands, the NLRB's decision could cause other franchisors to abandon the business model and operate retail outlets themselves, a spokesperson for the International Franchise Association said in an interview.