Labor & Employment Law Daily Over dissent, NLRB reverses, tells ALJ to approve settlements resolving McDonald’s complaints, avoiding joint employer finding
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Monday, December 16, 2019

Over dissent, NLRB reverses, tells ALJ to approve settlements resolving McDonald’s complaints, avoiding joint employer finding

By Ronald Miller, J.D. and Pamela Wolf, J.D.

The majority applied the “reasonableness” factors set forth in Independent Stave to find, contrary to the ALJ, that the settlement agreements are reasonable and provide a full remedy to all affected employees.

A divided three-member panel of the NLRB granted a request for permission by the General Counsel and McDonald’s to file a special appeal and vacated an administrative law judge’s order, remanding with instructions to approve settlements resolving unfair labor practice complaints against McDonald’s and 29 franchisees, based on alleged violations of Section 8(a)(1) of the NLRA. In denying approval of the settlement agreements, the ALJ misapplied the standard set forth in Independent Stave. Applying that standard, the Board concluded that the settlement agreements served the policies underlying the Act as well as the Board’s longstanding policy of encouraging the amicable resolution of disputes. Member McFerran filed a separate dissenting opinion (McDonald’s USA, LLC, December 12, 2019).

Complaints against McDonald’s. In December 2014, regional directors for various regions issued six separate complaints against McDonald’s and various franchisees. The complaints alleged that, in response to Fight for $15 activity—a campaign for higher wages for fast food workers—McDonald’s and the franchisees violated Section 8(a)(1) of the NLRA by threatening employees, promising benefits to them, interrogating them, and surveilling their protected activity. The complaints also alleged that McDonald’s of Illinois and nine franchisees violated Section 8(a)(3) and (a) by unlawfully discharging three employees, and suspending, reducing the work hours or, or sending home early 17 others, in retaliation for their union and other protected concerted activity.

Although the complaints did not allege that McDonald’s independently violated the Act, they alleged that the fast-food giant “possessed and/or exercised” sufficient control over the labor relations policies of the franchisees that it was a joint employer with the franchisees and, as such, could be held jointly and severally liable for unfair labor practices committed by the franchisees.

After the complaints were consolidated, the case proceeded for the next several years, focused primarily on McDonald’s alleged status as a joint employer. In October 2016, the law judge severed cases from four regions and placed them in abeyance, pending a decision from the Board in the cases from the two remaining regions. In January 2018, the ALJ granted the General Counsel’s motion to stay the hearing to discuss a global settlement of all pending NLRB charges, and to evaluate the impact of the Board’s decisions in Hy-Brand Industrial Contractors, Ltd. and The Boeing Co.

Settlement agreements. When the hearing resumed in March 2018, the General Counsel and McDonald’s presented a series of informal settlement agreements resolving all of the cases. Each of the 30 proposed settlement agreements addressed the allegations of a single franchisee. The settlement agreements provided backpay, front or premium pay to three employees who were discharged, rescission of allegedly unlawful rules, expungement of discipline and discharges, and notice posting at the franchisees’ restaurants and mailing notice to former employees.

Although the settlement agreements did not impose joint and several liability on McDonald’s as a joint employer, they imposed certain obligations on McDonald’s to support the remedies. In the event of noncompliance by a franchisee within nine months, the regional director could reissue the relevant complaint and file a motion for default judgment either against the franchisee or against both the franchisee and McDonald’s.

However, on July 17, 2018, the ALJ denied their motions to approve the settlement agreements. Evaluating the four factors set forth in Independent Stave, the ALJ found that they did not overall favor approval of the settlement agreements.

Denial vacated, remanded for settlement approval. On special appeal, the Board vacated the ALJ’s order and remanded the case to the judge with instructions to approve the settlement agreements. The majority applied the “reasonableness” factors set forth in Independent Stave to find, contrary to the ALJ, that the settlement agreements were reasonable and provided a full remedy to all affected employees. Further, accepting the settlement agreements would serve the policies underlying the Act as well as the Board’s longstanding policy of encouraging the amicable resolution of disputes.

The ALJ correctly found that the first Independent Stave factor (the parties’ mixed support for the settlement agreements) was inclusive in view of the General Counsel’s and McDonald’s support for the settlement agreements versus the charging parties’ strong opposition. Next, the ALJ correctly found that the third factor (the lack of fraud, coercion, or duress) and the fourth factor (history of recidivism by McDonald’s and the franchisees) weighed in favor of approval of the settlement agreements. The Board found no evidence that fraud, coercion, or duress were involved in the negotiations of the settlement agreements or that the employers had a proclivity to violate the Act.

Nature of violations. However, the Board disagreed with the ALJ’s finding that the second Independent Stave factor (the reasonableness of the settlement agreements in light of the nature of the violations alleged, risks of litigation, and the stage of the litigation) “strongly militates” against approval of the settlement agreements. In evaluating the second factor, the Board observed that the most important consideration was that the settlement agreements would provide an immediate remedy for all 181 violations alleged in the consolidated complaints.

The settlements also impose certain obligations on McDonald’s in place of the remedial guarantee of joint and several liability as a joint employer. The settlement agreements place responsibility on McDonald’s to secure both the notice and monetary remedies for the 181 alleged violations. Thus, the Board concluded that the settlements’ failure to hold McDonald’s jointly and severally liable for the remedial provisions did not preclude approval. From the employees’ point of view, the remedy they will receive is essentially identical to that which they would have received if the General Counsel’s joint-employer theory had prevailed, except for the broader notice-posting requirement.

Approval was also favored because there was substantial risk that the litigation would not clarify joint-employer law as the General Counsel originally intended. These cases presented novel and complex issues with unusual litigation risk. Even under the joint-employer standard articulated in Browning-Ferris, there was no guarantee that McDonald’s would be found to be a joint employer with its franchises. Moreover, the Board’s recent notice of proposed rule-making regarding the standard for determining joint-employer status may render moot the utility of this case as a vehicle to develop joint-employer law.

Further, because of the complexity of the consolidated complaints in this case, the Board determined that withdrawal of the complaint before compliance had been effectuated was appropriate. Additionally, the Board found that the lack of electronic posting and the omission of the traditional language binding “officers, agents, successors, and assigns” did not warrant rejection of the settlement agreements. Finally, the record did not support the ALJ’s determination that there was no meeting of the minds.

Dissent. Member McFerran, dissenting, argued that the majority’s decision was based on application of the wrong standard of review, and it reached a result that plainly does not effectuate the purposes and policies of the NLRA. Reversing the administrative law judge, the majority approved a series of informal settlement agreements (omitting a Board order) that do not impose joint and several liability on McDonald’s as a joint employer and that prevent a complete evidentiary record from being developed here. According to McFerran, the ALJ reasonably exercised her discretion to reject the settlements that failed to resolve the joint-employer status of McDonald’s and instead served to advance the policy view of the current General Counsel. Further, the dissent argued that, applying the wrong standard of review, the majority arbitrarily reversed the ALJ.

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