On July 29, 2014, the National Labor Relations Board (NLRB) authorized the filing of administrative complaints against McDonald’s USA, LLC (“McDonald’s”), the largest franchisor of restaurants in the United States. According to the NLRB, it has investigated 181 cases since 2012 of alleged unfair labor practices involving McDonald’s franchise restaurants, and it has found “sufficient evidence” to issue a complaint in 43 of these cases.

In employment cases, the “joint employer” doctrine allows a plaintiff to hold a non-employing entity vicariously liable for the employment actions of the employing entity. The doctrine is most often raised in the context of temporary staffing agencies because both the staffing agency and the staffing agency’s client exercise control over the terms and conditions of employment. If the NLRB ultimately finds that McDonald’s is a “joint employer” with its franchisees, McDonald’s would be equally responsible for labor violations committed by its franchisees.

Now that McDonald’s must defend itself against complaints issued by the NLRB, the company will undoubtedly argue that it runs a separate business from its franchisees’ and does not control the terms and conditions of employment for franchisee employees. Typically, franchisees pay the franchisor for the right to use the franchisor’s trademark, products, and marketing materials. The franchisees retain the right to hire and fire their employees and to engage in their own disciplinary process. The NLRB has not yet articulated why it believes McDonald’s may be a joint employer with its franchisees, but the agency is likely focused on various standards that McDonald’s imposes on its franchisees, which could have an impact on the franchisee’s workforce.

Although the NLRB has authorized the filing of complaints, the NLRB has not yet decided the “joint employer” question on the merits. McDonald’s has administrative and judicial avenues through which to challenge the application of the joint employer doctrine. However, the NLRB’s decision to authorize complaints has immediate implications for franchise businesses. Until this issue is resolved, franchisors risk liability for the actions of their franchisees. Franchisors can protect themselves by limiting the amount of control they exercise over franchisees, especially on matters that could affect franchisee employees.

Over the next year, employers should follow the McDonald’s cases closely. The NLRB might well issue a new test that affects the joint employer doctrine or issue factual findings that provide guidance for franchisors wishing to avoid vicarious liability. Until then, the NLRB has sent a clear message: franchisors cannot escape liability merely by staying out of the hiring and firing decisions made by franchisees. Until more guidance is obtained from the NLRB or the courts, the most cautious approach for franchisors is to maintain as little control as possible over its franchisees, including with respect to workplace standards, wages, and personnel decisions.