California fast food bill could link chains to wage theft and other workplace violations

Typically, under the franchise model, fast food companies enter into agreements with franchisees that dictate various standards for the sale of food products under their brand, but leave wages, hours, and working conditions up to the franchisee.

The model paved the way for business ownership for many minority-owned entrepreneurs, proponents point out.

But critics say companies like McDonald’s and Domino’s have been allowed to make a profit while distancing themselves from responsibility for how restaurant workers are treated.

Co-employers?

The question of the relationship of franchisors to workers remains unresolved at the federal level. In three presidential administrations, the National Labor Relations Board has back and forth on the advisability of automatically considering franchisors and franchisees as “co-employers”. Courts, including the California Supreme Court, have generally rejected this idea under existing law.

“These franchise models have been an avenue and a way for companies to avoid the responsibility of being employers,” said Emily Andrews, director of education, labor and worker justice at the Center for Law. and Social Policy, a national left-wing anti-poverty organization. organization.

Studies have shown that franchisors can exert significant pressure and control over franchise business owners.

In a paper published last year, law professors from the University of Miami and Cornell University reviewed 44 franchise agreements from 2016 and found that more than three-quarters gave the chain exclusive power to terminate contracts, placing a franchisee “in a position of economic dependence”. .”

“Franchisees may respond to intensive franchisor oversight and tight profit margins by illegally chiselling wages as the only cost variable that the franchisor does not directly monitor,” the law professors wrote.

The International Franchise Association disagrees, arguing that the business model is defined by the independence of franchise owners in work decisions. The fast food bill, they said, would reduce such owners to middle managers, and big companies would take away opportunities in California if they were required to monitor labor law compliance.

“You would hold an entity accountable or assign responsibility for things over which it has no control,” said Jeff Hanscom, spokesman for the Washington, DC-based association, which includes franchisors and franchisees. “You take a franchise and turn it into a corporation.”

The Cheesecake Factory Case

This argument has some influence on state senate lawmakers.

During a June hearing on the fast food bill before the Senate Judiciary Committee, some Democratic lawmakers questioned whether an automatic liability extension was necessary. Sen. Bob Wieckowski, a Democrat from Fremont, pointed out that under current law, a judge can already find a franchisor liable for a labor violation if proven on a case-by-case basis.

Representatives for some franchisors, including McDonald’s, Jack in the Box and Burger King, did not respond to requests for comment on the California fast food bill.

For worker advocates, extending liability is key to enforcing wage and labor laws.

Yardenna Aaron is executive director of the Maintenance Cooperation Trust Fund, a janitorial hub that pushed for joint responsibility in this industry in 2015.

Before the law was passed, Aaron said, entrepreneurs often closed shop or declared bankruptcy when faced with allegations of wage theft, only to reopen later under a different name or business entity.

The new law allowed the state labor commissioner to issue citations against larger and more important companies in cases of alleged wage theft.

In a high-profile 2018 case, the California commissioner of labor named the Cheesecake Factory jointly liable with a janitorial services company, saying they owed nearly $4 million to 559 janitors who cleaned eight of the city’s restaurants. chain in Southern California. It was one of the biggest cases of wage theft in the state.

The state has filed similar lawsuits against electric car maker Tesla over its contractors who allegedly underpaid janitors at its San Jose factories, and e-commerce giant Amazon over a contractor who allegedly failed to pay overtime to its delivery drivers.

The power of the stock market

Labor experts said it’s too early to tell whether joint liability has made it easier for the state to recover unpaid wages. State investigations into wage theft take months. And when the state cites employers, claiming unpaid wages and penalties, employers typically appeal, triggering administrative hearing proceedings that can take years.

The Cheesecake Factory case is still awaiting a hearing, four years later. Fans expect a resolution this year, Aaron said. The Maintenance Cooperation Trust Fund represented the workers interviewed in this case; its then-director, Lilia Garcia-Brower, is now California state labor commissioner.

Officials from the labor commissioner’s office in 2020 pointed to the growing complexity of liability laws for the long delays in processing the tens of thousands of individual wage claims filed each year by workers.

Still, legislative staffers predicted that joint liability would “almost certainly” improve labor compliance in fast food by forcing big companies to monitor franchisee behavior.

Aaron said this has been evident in the janitorial industry since the 2015 law change. The worker center meets with corporate clients who hire janitorial contractors to educate them about labor laws.

“We find that, generally, clients want to avoid the liability that contractors would incur in terms of wage theft cases,” Aaron said. “The power of the stock market is real.”

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