NLRB Approves Consolidation of McDonald's Franchisee and Franchisor Mega-ULP Litigations | Practical Law

NLRB Approves Consolidation of McDonald's Franchisee and Franchisor Mega-ULP Litigations | Practical Law

In McDonald's USA, LLC, the National Labor Relations Board (NLRB) approved the consolidation of unfair labor practice (ULP) cases against 31 McDonald's franchisees and the fast food giant as a joint employer of the franchisees' employees and a case management order controlling the trial.

NLRB Approves Consolidation of McDonald's Franchisee and Franchisor Mega-ULP Litigations

by Practical Law Labor & Employment
Published on 19 Jan 2016 • USA (National/Federal)
In McDonald's USA, LLC, the National Labor Relations Board (NLRB) approved the consolidation of unfair labor practice (ULP) cases against 31 McDonald's franchisees and the fast food giant as a joint employer of the franchisees' employees and a case management order controlling the trial.
On January 8, 2016, in McDonald's USA, LLC, a majority of the panel (Board) heading the NLRB's judicial functions approved the consolidation of unfair labor practice (ULP) cases against 31 McDonald's franchisees and franchisor McDonald's USA, LLC as a joint employer of the franchisees' employees. The Board majority held that a NLRB administrative law judge (ALJ) did not abuse her discretion by denying a motion to sever. In a separate decision from the same case, the Board majority also found that the ALJ did not abuse her discretion by directing through a case management order that evidence on joint employment issues be offered before evidence on the merits of the 181 alleged ULPs in a single mega-trial. (363 N.L.R.B. No. 91 (Jan. 8, 2016); 363 N.L.R.B. No. 92 (Jan. 8, 2016).)

Background

ULP charges were filed against:
  • McDonald's Restaurants of Illinois (Nine alleged NLRA violations).
  • 30 McDonald's restaurant franchisees (172 alleged NLRA violations).
  • McDonald's USA (alleged to exercise sufficient control over the above 31 respondents to be a joint employer of the other respondents' employees).
The NLRB's General Counsel initially issued six consolidated complaints, one for each NLRB regional office in which the charges were filed. In January 2015, the General Counsel further consolidated the six consolidated complaints into one complaint encompassing all of the 181 alleged violations against the 32 different respondents.
In February 2015, the ALJ denied a motion to sever filed by McDonald's USA and the franchisees, finding that the General Counsel's consolidation orders were not an arbitrary abuse of discretion.
In March 2015, the ALJ issued a case management order requiring the General Counsel to present evidence that McDonald's USA was a joint employer of the franchisees' employees before litigating the merits of the underlying ULP violations.
The Board granted requests for special permission to appeal the ALJ's ruling on the motion to sever and the case management order.

Outcome

The Board majority (Chairman Pearce and Member Hirozawa) denied the appeals on their merits, holding that the ALJ did not abuse her discretion when she denied the motion to sever because:
  • The General Counsel "may do as he thinks best" and his decision about whether to consolidate is subject to review only for "arbitrary abuse of discretion" (Service Employees Local 87 (Cresleigh Management), 324 N.L.R.B. 774, 774 (1997)).
  • The General Counsel's basis for consolidating the cases was reasonable. The General Counsel found that most of the evidence to be presented applied to all franchisees.
  • Consolidating the ULP complaints into one matter requires one hearing and one judge's decision. The Board would be asked to review only one judge's findings, and the Board's decision would lead to one single appellate court ruling.
  • It would be too speculative to conclude that McDonald's severing approach would be more efficient in time and costs than the General Counsel's consolidation approach. The Board is not required to determine which approach is better.
The Board majority found that the ALJ did not abuse her discretion in determining the order of evidence to be presented in this case because:
  • Evidence of joint employment:
    • was necessary to determine if McDonald's USA was properly a party in the case; and
    • could prove the underlying ULP allegations.
  • It is reasonable to conclude that litigating the ULP allegations first would be more costly, less efficient, and lead to delays because multiple hearings would need to be held in the three cities involved (New York, Chicago and Los Angeles).
  • It is neither unusual nor controversial for the judge to hear evidence on joint-employer status during the same hearing in which evidence on the merits of the alleged ULPs is also presented (Hoot Winc, LLC, 363 N.L.R.B. No. 2 (Sept. 1, 2015); CNN America, Inc., 361 N.L.R.B. No. 47 (Sept. 15, 2014)).
Member Miscimarra dissented from both decisions, noting, among other things, that:
  • The current proceeding is not merely a consolidated case; it is a mega-consolidation resulting from combining six already consolidated cases that started with 61 separate ULP charges filed against 31 different respondents.
  • Nothing in the Board's history resembles this litigation in nature and the mega-consolidation of claims and parties.
  • The aggregation of unconnected parties and claims in this consolidated case structure will impose greater costs and delays for the NLRB, the parties, and any subsequent reviewing court, or courts, than if the alleged violations were litigated in proceedings limited to each of the 31 franchisees, as urged by the Respondents. The cost and delay from detailed scrutiny of these matters will be extensive if the continuing 10-year-plus proceedings involving CNN as a purported joint employer are any indication (see Legal Update, CNN Was Joint Employer of Subcontractor's Employees, Violated NLRA by Terminating Subcontracts with Antiunion Animus: NLRB).
  • Litigating the joint employment issue and the NLRA violation issues in a single proceeding before a single judge will likely:
    • result in substantial additional cost and delay;
    • prejudice McDonald's USA and the franchisees and deny them due process; and
    • inherently benefit the General Counsel to the detriment of all other parties, including, the employees whose claims are being adjudicated.

Practical Implications

The Board's two decisions in McDonald's endorse the NLRB General Counsel having virtually unfettered discretion to consolidate ULP litigations. By approving the unprecedented consolidation of the cases and the related case management plan for trying 181 separate ULPs against 32 different respondents the Board has likely set a course for the most expensive, time consuming and otherwise unwieldy ULP case ever.
This case will present the respondents with difficult choices, such as whether to:
  • Explore settlement with the NLRB. If settlement is possible, it likely will be in exchange for cooperating in the NLRB's introduction of evidence that McDonald's USA, as franchisor, is a joint employer of each franchisee's employees.
  • Cooperate with fellow respondents in the defense of the mammoth litigation to reduce litigation expenses. The NLRB might later cite that kind of cooperation as:
    • new evidence of joint employment; or
    • evidence that the parties constitute a single employer.
Franchisors should recognize the pains the NLRB may impose on purported joint employers of franchisees' employees. If McDonald's USA and its franchisees do not settle this case, they are in store for many years of litigation to:
  • Challenge the merits of the ULP complaint allegations.
  • Dissociate from any meritorious ULP complaint allegations against other respondents.
  • Demonstrate that McDonald's USA does not:
    • indirectly control any of the franchisee's employees;
    • possess an unexercised ability to control those employees; or
    • have leverage to obtain advantageous terms in its contracts with the franchisees because of the franchisees' economic dependence on it.
    (See Legal Update, NLRB Issues New Joint Employer Standard, Blends Economic Realities Elements into Control Test.)
On the other hand, employers without franchisor-franchisee joint employer concerns may indirectly benefit from these decisions. The NLRB will need to assign a significant number of staff and earmark a large share of the NLRB's budget to this case and its expected appeals for years to come. Congress has recently expressed more interest in reducing the NLRB's budget than expanding it, especially if any increase would relate to efforts to expand the scope of which entities may constitute a joint employer. Consequently, in the near term, this case may reduce the NLRB's resources for:
  • Investigating, prosecuting, adjudicating and litigating about the enforcement of other ULP charges.
  • Engaging in administrative rule making.
  • Coordinating expeditious union representation elections.