Recent McDonald’s Ruling Could Upend U.S. Franchising System

The decision allows McDonald’s’ corporate operations to be held responsible along with its thousands of independently-owned franchisees when it comes to dealing with disputes over franchisees’ treatment of workers for participating in protests calling for higher wages. It’s a major victory for a union movement that has been battered lately, but which has found a stalwart ally in the Obama administration.

With this ruling, the Obama administration may have begun an overturning of one of the pillars of the powerful and lucrative American franchise model, in which brands have expanded much more robustly than they could otherwise by attracting investments from independent business owners. These investors take on the ownership risks of running franchises and then pay the brands a portion of their proceeds for benefits such as marketing, common IT systems and so on.

Representatives of both McDonald’s and other companies were up in arms at the news. “There is no legal or factual basis for such a finding, and we will vigorously argue our case” in appeals, the quick-serve restaurant chain wrote in a memo to franchisees.

McDonald’s also said in a statement that “this decision changes the rules for thousands of small businesses, and goes against decades of established law regarding the franchise model in the U.S.”

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Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

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