Troubles continue to surface for the leading burger chain,
). A recent ruling by the National Labor Relations Board (NLRB)
declared that McDonald's, USA, LLC will be treated as a joint
employer together with its franchised restaurants. In other words,
McDonald's could be held responsible for any labor or wage
violations by its franchisees.
The ruling comes in the wake of complaints made by workers against
this fast food chain over the last 20 months accusing it and its
franchisees of unfair labor practices, which include illegal
dismissals and threatening or penalizing workers for their
The workers have claimed that the company is a joint employer as it
strictly instructs its franchisees to follow all rules related to
food, cleanliness and employment practices. Given the scenario, the
labor board ruled that McDonald's would be considered as a joint
employer if both parties do not arrive at a settlement.
However, McDonald's, 90% of whose restaurants in the United States
are franchised, stated that it would fight against the decision. It
indicated that it does not determine decisions on hiring, wages or
other employment matters at its franchised restaurants.
The company is already under pressure to increase wages. In May
this year, its workers protested at the headquarters to push wages
to $15.00 per hour. (Read more: Fast Food Workers on Strike
Globally). Such a ruling is a shot in the arm for workers,
providing them a more centralized and powerful authority and making
it easier for them to unionize and present their demands.
McDonald's would now be seen as a corporation and an employer of
thousands of store employees across the country. It will be liable
to face the consequences of violating employee rights.
Franchising is a trend among fast food chains now. Franchising
reduces ownership of restaurants and thereby lowers the
responsibility of these food chains. Moreover, focusing more on
re-franchising minimizes the company's capital requirements and
facilitates earnings per share growth and ROE expansion.
Besides, McDonald's there are many other companies that face the
same troubles as they also franchise a majority of their
restaurants. Burger King Worldwide, Inc. (
), Domino's Pizza, Inc. (
) and Yum! Brands, Inc. (
) have more than 90% of their restaurants franchised; The Wendy's
) has more than 80% franchised units while Buffalo Wild Wings Inc.
) has more than 55% franchised outlets.
Recent Issues Faced by the Company
Recently, a Russian consumer protection agency filed a lawsuit
against the company in Moscow court stating that the company is
selling food that contains more fat and carbohydrates than the
permissible standards in Russia. Prior to that Shanghai Husi Food
Co., a supplier of meat for McDonald's, was found reusing meat that
had fallen on the factory floor as well as mixing fresh and expired
Though the legal process is long, the labor groups have already
begun celebrating. On the restaurants' front, however, entering
into a franchise deal will be a bit challenging. Over the past few
years, franchise job growth and new business formation have
outperformed non-franchise growth. The ruling, if upheld, could
halt the pace of growth.
We believe that the latest setback could adversely impact
McDonald's sales. McDonald's presently has Zacks Rank #4
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