With Free Coffee from McDonald’s, Will You Forget the Workers?
By Victoria W. Ni, Senior Attorney, and Sarah Belton, Cartwright-Baron Attorney
Fast-food giant McDonald’s is making headlines this week as its stores offer free coffee during the first part of April. In what is viewed by some business analysts as a desperate grab for breakfast customers, the free coffee giveaway has been rolled out nationwide.
How does McDonald’s, the world’s biggest hamburger chain, implement a centrally-designed campaign like this across some 14,000 locations in the U.S.? The franchise system. The business known for its golden arches is also known for the success of the franchise business model—one where franchisees purportedly operate independently with only some guidance from corporate headquarters. Under the franchise system, the franchisor (McDonald’s Corporation) grants to the franchisee a license to use the McDonald’s name, as well as marketing support and business direction. The franchisee, in return, agrees to follow certain guidelines and to pay a franchise fee—usually a percentage of revenue.
Seven lawsuits filed last month allege this franchise system also pressures franchisees into not paying workers the wages to which they are legally entitled in order to drive down the cost of labor. And they allege that McDonald’s—the franchisor—should be held responsible for the unpaid wages.
Our laws recognize that, regardless of title or business structure, it is those who actually control wages, hours, and working conditions who should be held to account for complying with our labor laws.
According to the complaints in these lawsuits, McDonald’s corporation exerts so much control over its franchisees and their workers that it and the franchisees should be considered an employer of the workers under the law. Most physical McDonald’s locations are actually owned by the corporation and leased back to franchisees. The lawsuits say that McDonald’s Corporation remains heavily involved in many of the financial details at each company location. For example, McDonald’s requires all of its franchisees to use its computer system to track and meet the corporate-set goals for labor costs. It sets target numbers for the ratio of labor costs to store revenues. In Michigan, if stores exceed a target number, supervisors force workers to clock out for extended, unpaid breaks until the ratio is achieved. In California, restaurant managers alter punch-in and punch-out times for employees to avoid having to pay overtime or for missed meal or rest break periods. These allegations, if proven, could amount to violations of federal and state labor laws.
Although McDonald’s has yet to submit formal answers to these lawsuits, it likely will disavow its responsibility to these workers, who are nominally employed only by the franchisees. But McDonald’s should not be able to hide behind franchise agreements—and shield the corporation from legal responsibility—if it is true that the corporation exerts a tremendous amount of control over employment policies and practices, and that the end result of these policies and practices is that workers are not receiving the wages they rightfully earned.
The median hourly wage for a fast-food worker is $8.94; and fast-food workers average only 24 working hours a week. This adds up to annual earnings of only $11,000 for each worker. Taxpayers reportedly spend $1.2 billion a year on public assistance to McDonald’s workers alone so that they can afford health care, food, and other basic necessities. McDonald’s, meanwhile, touts billions in profits year after year.
There is a robust debate happening in this country about income inequality, the plight of low-wage workers, and how our laws should be re-written to help them. Rightly so. But lawsuits that seek to enforce our laws as they are written today are important too. McDonald’s, regardless of its corporate structure, should not be allowed to use the franchise model to opt-out of our laws protecting workers.
photo credit: Thomas Hawk via photopin cc