Federal Government Seeks to Limit Wage Claims Against Large Chains

Recently, the U.S. Department of Labor released a proposal that would limit wage claims against chain corporations like McDonald’s for employment-law violations filed against franchise owners or contractors. This announcement comes just days after McDonald’s, the world’s largest restaurant chain, released a statement that it will stop lobbying in Congress against industry wage hikes.

According to Politico, on March 26, 2019, McDonald’s announced to the National Restaurant Association in a letter that the company will no longer participate in lobbying efforts against increases in the minimum wage. In the letter, Gena Gent, Vice President of U.S. Government Relations at McDonald’s, stated that the company’s resources, including staff and lobbyist, will not continue its efforts to oppose minimum wage increases at federal, state, and local levels. In addition, the company will not “participate in association advocacy efforts designed expressly to defeat wage increases,” writes Ms. Gent.

The announcement was considered a significant shift in the company’s efforts, which has been publicly scrutinized for its low employee wages and benefits over the years. Many see this announcement as McDonald’s furthering its efforts to improve its public image. This event comes as a blow to the National Restaurant Association, the largest foodservice trade association in the world, which has now lost its largest key member on the wage hike issue, a cause central to the restaurant company industry.

Despite the setback of losing McDonald’s in its corner, the National Restaurant Association got a big win less than a week later with the labor department’s proposal which seeks to define when employees of a locally-run chain can challenge the chain corporation over compliance with minimum wage or overtime laws. According to The New York Times, the proposal, which was released on April 1, 2019, would potentially limit the ability of millions of employees to pursue wage claims under joint employment. The proposal must undergo a 60-day public comment period before it can be finalized.

Under the new proposal, situations in which corporations like McDonald’s would be held liable for a franchise’s or contractor’s violations are substantially limited. For example, McDonald’s would not be held liable for minimum-wage or overtime infractions, even if the franchise relied on materials from its corporate entity, such as sample employee handbooks or applications.

The proposal is a significant shift from the joint-employer criteria that was laid out in 2016 under the Obama administration. Under the previous guidelines, a restaurant chain like McDonald’s could be held liable for minimum wage violations committed by a franchise, even if the corporation did not directly supervise workers or participate in the hiring or firing of employees at the said location. A larger corporation’s exercise of some forms of indirect control, such as providing a computer program or developing franchise policies, could make potentially liable. In addition, the labor department under the Obama administration argued that corporations might be considered joint employers even if they do not exercise control over its franchises or contractors because these smaller entities were economically reliant on them.

Under the proposal, four factors must be established for joint employment to be determined. These factors include:

  • Whether the company exercises power to hire and fire a franchise’s or contractor’s employees;
  • Whether it supervises the franchise or contractor and controls its schedule;
  • Whether it sets its pay;
  • Whether it keeps up with its employment records.

If a company does not engage in most or all of these activities, it cannot be considered a joint employer.

Critics of the proposal argue that it allows the corporations to side-step responsibility for violations even though it has substantial control over workers hired by its franchises or contractors.

If you are seeking to file an employee wage and hour dispute against your employer, it is important that you seek the guidance of an experienced New York employment lawyer who can protect your legal rights and advocate on your behalf during the legal process. Steven Mitchell Sack, the Employee’s Lawyer, is a New York employment lawyer who has considerable experience in handling the many aspects of employee wage and hour disputes, including overtime, tips and gratuities, minimum wage, unemployment benefits, and disability matters. To schedule a consultation with New York City employment lawyer Steve Mitchell Sack, call (917) 371-8000.

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