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McDonald’s and Franchising

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You may have some questions about just how McDonald’s runs its franchising operations and why the company is the focus of so much attention with the NLRB’s Browning decision from last week. Of course, franchising can mean a lot of different things with a number of varying arrangements. In the case of McDonald’s, the company seeks detailed control over the franchisee in ways that other fast food companies do not, arrangements that suggest an almost Don Blankenship-level of control over work that makes an argument it is not a joint employer highly dubious. Jeff Spross has more on this.

The funny wrinkle in McDonald’s case is that a lot of the company’s franchisees really don’t like the model. They have to pay the corporate mothership 4 to 5 percent of their revenue for a franchise fee, and then another 4 to 5 percent to go into an advertising fund. The franchises then have to pay another 12 percent to McDonald’s for rent. Meanwhile, the central company gives franchisees a slew of requirements in terms of remodeling, computer systems, and other expenses they must incur to stay in the franchise agreement.

By all accounts, McDonald’s has cracked down on its franchisees in recent years. It controls most of the prices on the menu, and between that and its hefty operating demands, it’s squeezing franchisees so that the way to make the business model successful is to pay the workers less. Dissatisfaction amongst McDonald’s franchise owners is reportedly at an all-time high, so they clearly feel they’re under fire.

But then you have to ask: Under fire compared to whom? The average American worker, or other small business owners pulling down $100,000-plus a year?

Another wrinkle, according to Kalnins, is that McDonald’s is genuinely an outlier in the aggressiveness with which it deals with its franchises. In other chains, franchisees can own hundreds of stores, and sometimes be public corporations unto themselves. But “McDonald’s really wants small owners,” Kalnins explained — somebody overseeing three, four, or five units. “Somebody who’s checking out what’s going on in those units every day.”

The upside for McDonald’s is franchisees who are “much more loyal and will do what you want them to, because of their smaller size.” The downside is a far more aggressive interference on the part of McDonald’s in terms of the running of the stores and its relationships with workers.

Another thing that makes McDonald’s an outlier is it’s one of the few chains that owns the property for every last one of its stores, and thus charges its franchisees the rent. Kalnins said he’s spoken with franchise consultants who figured that while the 12 percent of revenue that McDonald’s charges for rent is high compared to the standard 10 percent small businesses usually face from real estate owners, it’s not extraordinary. But “if you add the rent to it then certainly they’re paying more than for other chains. And that’s relatively unusual.”

Given all of this, how is McDonald’s not the direct employer of the workers? They are of course, even if they’ve offloaded the onerous parts of hiring onto the franchisee. And became McDonald’s corporate so controls all the details of work, this operates in some of the same ways that the apparel industry’s exploitative subcontracting system does–by making sure that the only way the franchisee is going to make any money is to squeeze workers as hard as possible, with a bottom baseline only a federal or state labor law that may or may not be stringently enforced on the ground. This is another reason why we need to push back against these sorts of labor arrangements through holding corporations legally accountable for the workers making their products regardless of whether they are directly employed, subcontracted, franchisees, temp workers, etc. These latter systems exist precisely for the kind of advantages McDonald’s has created here. Hopefully the NLRB will continue bringing this system back under control.

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