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McDonald’s Wins High-Stakes Labor Battle With Help From White House

Lauren Etter, Josh Eidelson, Hassan Kanu and Michael Smith
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McDonald’s Wins High-Stakes Labor Battle With Help From White House

(Bloomberg) -- In a television commercial that’s become part of the lore surrounding Donald Trump’s affinity for McDonald’s Corp., he embraced a purple, lumpy denizen of the fast-food chain’s “McDonaldland” and said, “Together, Grimace, we could own this town.”

He was talking about New York, not Washington. Yet on Thursday, some 17 years after he appeared in that spot for the “Big ’N’ Tasty” sandwich, President Trump’s appointees delivered a high-stakes political victory for McDonald’s in one of the most important labor disputes in decades.

The national board that referees union-organizing drives effectively absolved the company of liability for alleged labor-law violations in some of its franchisees’ restaurants, easing a major threat to the fast-food giant’s business structure. Trump’s appointees overrode an agency judge and rebuffed ethical concerns raised by labor advocates to approve a group of settlements in the matter on a 2-1 decision. The deal resolves allegations of wrongdoing without holding the corporation legally liable as “joint employer” with its franchisees.The victory, which eluded McDonald’s during Obama’s presidency, could help the fast-food giant close a bruising chapter in its history that imperiled its valuable brand as well as the franchise structure it’s built on.

 

 

In an emailed statement, McDonald's Corp. said it was “pleased” that the case had been concluded, and that the decision “allows our franchisees and their employees to move forward, and resolves all matters without any admission of wrongdoing.”Separately, top administration officials, including acting White House Chief of Staff Mick Mulvaney, are pushing to enact new, more lenient rules that would help insulate McDonald’s and similar chains from liability for the conduct of their franchisees. “President Trump has made deregulation a priority across the administration, which has helped unleash unprecedented economic and job growth,” White House spokesman Judd Deere said.There’s no sign that Trump has personally intervened in the NLRB’s McDonald’s case. Regardless, the case stands apart—both in terms of its history and its potential repercussions.During a messy, multi-year saga, the company became a focal point in the “Fight for $15” movement to increase pay and unionize fast-food workers, among others. As protests engulfed McDonald’s restaurants, a corporate team responded by organizing a central effort to help franchisees push back against the union, according to evidence submitted in the case. Workers eventually complained to the NLRB, alleging that the tactics franchisees used amounted to illegal retaliation for engaging in federally protected union activities. In 2014, the board’s general counsel found enough merit in the workers’ claims to issue formal complaints against a group of franchisees, complaints that also accused McDonald’s of acting as a “joint employer” with them. McDonald’s and the franchisees have denied any illegal retaliation or other unfair practices. McDonald’s has called the allegations baseless and argued that it can’t be legally held responsible for decisions of its franchisees, who run more than 90% of McDonald’s restaurants and set their own wages and hiring practices. Franchisees denied the allegations as well.  

In the board’s ruling Thursday, two Trump appointees approved proposed settlements that provide back pay to McDonald's workers but do not hold McDonald's Corp. liable as a "joint employer." In their decision, the members wrote that the deal would "remedy every violation alleged" in the government’s complaints against McDonald's."Moreover, we conclude that further litigation would impose a substantial burden on the parties, without a significant probability of prevailing on the complaint’s joint-employer allegation," board members Marvin Kaplan and William Emanuel said in the ruling.

Union advocates had lodged a formal petition with the board arguing that Emanuel needed to recuse from the case because he worked at a law firm that McDonald’s hired to counter the Fight for $15 organizing and protest efforts.Emanuel "has considered the motion and has determined, in consultation with the Board’s Designated Agency Ethics Official, not to recuse himself," according to the ruling, which noted that his firm had not been representing McDonald’s or franchisees in the NLRB case itself. Last month, Board Chairman John Ring — who also came from a law firm that has worked for McDonald’s — revamped ethics policies that might have made it harder for him or Emanuel to participate in the case. As it turned out, Ring was not part of the three-member panel that ruled on the McDonald’s decision.

In a dissent, the NLRB's sole Democrat, Lauren McFerran, said the settlements were "unreasonable," and that with McDonald's joint-employer status unaddressed, "it is likely that similar issues will arise in the future."The decision represents a setback for the Service Employees International Union, which since 2012 has backed the “Fight for $15” protests. The SEIU’s president, Mary Kay Henry, pledged to appeal any adverse decision.

“It’s going to take a lot more than a politically motivated decision on behalf of a Trump administration doing McDonald’s bidding to stop the workers of the Fight for $15,” Henry said in a statement.

The board's vote also means that the corporation’s moves to help resist the protests and unionization effort have received, more or less, tacit acceptance from federal regulators. Those tactics, which were discussed by and, at times, coordinated by regional executives of the company, included gathering intelligence from a cashier who attended a union meeting as a mole, circulating names of suspected pro-union workers and coaching a franchisee on how to avoid hiring union sympathizers, according to excerpts from thousands of previously unreported documents and internal emails. The documents, which were provided to the NLRB by McDonald’s and several franchisees under a federal judge’s subpoena, reveal an inside look at how McDonald’s corporate staff members worked with franchisees on strategies to fight the union.

McDonald’s didn’t respond to specific questions about several allegations, but said in a statement to Bloomberg News that the case is “incredibly complex” and that the “evidence is vast and complicated, and requires significant context to accurately and responsibly consider.” The company took issue with Bloomberg’s summary of that evidence, saying, “What you have highlighted are selective allegations and asserted them as facts, when there has been no judicial decision or review.”

 

Last year, as she rejected a proposed settlement in the case, an administrative judge for the NLRB found that the case contained “copious evidence pertinent to McDonald's activities in order to provide resources and support for its franchisees throughout the country in response to the Fight for $15 campaign.” Specifically, Judge Lauren Esposito wrote that the case included “evidence that McDonald’s response to the Fight for $15 campaign was formulated and implemented from its corporate headquarters.” On Thursday, the board ordered her to accept the settlement.

The joint-employer question at the heart of the NLRB case carries profound implications. In 2015, in a different case that didn’t involve McDonald’s, the NLRB issued a ruling that would make it easier to hold companies accountable for franchisees’ mistreatment of workers. By 2017, that issue was seen as so dire—not just for McDonald’s, but for franchise operations generally—that the then-chair of the International Franchise Association compared it to the 9/11 terror attacks. 

While fighting McDonald’s at the NLRB, the union has opened other fronts too, arguing the company should share any liability for a range of alleged transgressions inside franchised stores. Recently, dozens of workers have alleged sexual harassment in the chain’s restaurants in lawsuits or complaints filed with the federal Equal Employment Opportunity Commission. In August, McDonald’s announced an “operator-led, company-supported” training initiative for 850,000 workers across the country to help ensure “safe and respectful” workplaces.

Last month, amid that latest rash of allegations, the company fired Chief Executive Stephen Easterbrook for engaging in a consensual relationship with an employee, a violation of company policy. During his almost five-year tenure atop McDonald’s, Easterbrook presided over a sharp rise in the company’s share price—despite a decline in annual revenue to about $21 billion from $25 billion. The revenue changes stem from a “refranchising” strategy to sell corporate-owned stores to independent owners that began in 2015, according to McDonald’s. Over the same period, annual profit margins surged to about 28% from 17%, a jump driven partly by new innovations such as all-day breakfast, touch-screen ordering kiosks and home delivery.

But in time, overseeing the company’s reversal of fortune in Washington—and preserving the liability buffer between the corporate headquarters and the franchisees—may be viewed as Easterbrook’s most lasting impact. 

After being targeted by the Fight for $15 campaign for years, this March McDonald’s announced that it would no longer fund lobbying efforts to prevent minimum wage increases. The company said in a letter that it would continue talking to lawmakers about how any increases should work, including that “all industries should be treated the same way.” 

In its statement, the company said it has “made significant investments in our people practices to provide employees at both McDonald’s corporate-owned and franchise locations with opportunities for competitive wages, education and safe and respectful workplaces.”

Average starting pay at its corporate-owned restaurants is $10 an hour, the company said—well above the federal minimum wage of $7.25 an hour but well below the fought-for $15. The average starting wage equates to $20,800 over a year’s worth of 40-hour weeks. “While franchisees control wages in their restaurants, we believe they are similar and competitive,” the company said.

Most people remember Ray Kroc, who took McDonald’s from a small, California-based chain to a global fast-food empire, for innovations in franchising, but he also pioneered the low-wage fast-food job. As he oversaw the chain’s proliferation nationwide, the new restaurants staffed up with low-wage workers, many of them teenagers. Today, teens are a declining share of the food-service workforce; 18% of restaurant workers are aged 16 to 19, down from 20% in 2008, according to the National Restaurant Association, which projects additional declines by 2026. 

About 90 percent of McDonald’s 14,000 U.S. restaurants are franchises, a structure that keeps the company relatively asset-light and low-risk. The Trump administration is working on new rules that would reduce legal exposure for corporate franchisers. The proposals would make it harder, for example, to hold McDonald’s Corp. liable, along with franchisees, if kitchen managers are accused of sexual harassment or workers claim they weren’t paid overtime. 

The structure also makes it nearly impossible for workers at franchised restaurants to win the right to bargain collectively with McDonald’s executives—unless the NLRB determines that the corporation is indeed the workers’ “joint employer.” Without that, or a negotiated deal between the company and the union, any organizing effort would have to take place in pieces, franchise by franchise. The risk that the corporation could simply drop any unionized franchise would make that even harder to accomplish.

Over the years, the company has weathered its share of public relations challenges. French anti-globalization radicals bombed its restaurants. Animal-rights extremists distributed “Unhappy Meals” with a plastic chicken covered in fake blood. The 2001 book Fast Food Nation tied McDonald’s to the obesity epidemic. But the Fight for $15 movement took place on a scale the company hadn’t seen before.

Beginning in 2012, in the wake of the Occupy Wall Street demonstrations, a union-backed drive immersed McDonald’s restaurants in street protests that eventually spread globally. Protesters jammed drive-thrus, chanted in restaurants, banged on windows and stood atop tables.

 

Corporate executives monitored developments as managers helped orchestrate a years-long anti-union response across the U.S., according to an analysis of thousands of pages of documents filed in the national labor board’s case. In 2014, the NLRB’s Obama-era general counsel alleged that the company’s subsidiary, McDonald’s USA LLC, was liable as a joint employer for a nationwide pattern of anti-union activity that included franchisees making threats, conducting surveillance, cutting work hours and firing workers who sought better pay and working conditions.

Signs of unionizing efforts began emerging in October 2012, as reflected in a memo about organizing activity that circulated via McDonald’s internal email. “Seems to be affiliation with Occupy Wall Street movement,” said the document, which was in an email from a senior director of human resources. Soon, notes about the union showed up on an internal McDonald’s “activity log.” Said one entry: “White male talking to employees about affordable housing and asking questions about pay. Repeatedly in restaurant.”

After word of an upcoming union meeting surfaced, a cashier at one New York City McDonald’s acted as a mole for the company, records show. She attended the meeting in Harlem, and by the next day, she shared her findings: About a dozen workers signed up to be union leaders, a report on the incident said.

“They said McD makes $Billions + only pay minimum wage,” the worker reported. “… Focus seems to be on young, attractive female cashiers that speak English well ….”

On Nov. 29, 2012, the Fight for $15 campaign made its first public splash with protests at fast-food restaurants across New York City as workers at McDonald’s and other chains went on strike for the day. From there, protests spread nationwide, fueled by old-school organizing and social-media messaging. At the time, McDonald’s had only a sparse social-media team and had yet to match the union in that capacity, according to two people familiar with the company’s operations.

The company created fast, effective communications channels with franchisees to discuss the union’s activities. In emails and text messages, its managers made plans to combat “the opposition” and emphasized that some messages needed to be secret.

“There is a sense of urgency regarding the gathering of this intel so that we can plan and prep the operators …,” said one email from a human resources director. “As a tip, you can text your operators regarding this message, however you have to instruct them to ERASE the message and response back to you, and you will need to do the same.” McDonald’s didn’t respond to questions about why recipients were advised to erase messages.

In addition to a cadre of labor lawyers and several public relations firms, McDonald’s worked with “union avoidance” strategists, records show. In one case, a regional executive shared with a franchisee strategies on how to identify and avoid “salts,” or people who try to get hired in order to help organize a workplace. Federal law restricts the organized avoidance of such hires.

Corporate employees circulated names of workers thought to be supporting the union. Once, in 2013, the company dispatched a “mobile security detail” to several Manhattan franchisees’ restaurants after receiving what an internal email described as “intel” about a possible Fight for $15 rally. The company told Bloomberg News that at times “security may be necessary on-site at restaurants for the safety of our property, customers and/or employees.”

More than once, a regional McDonald’s executive organized gatherings in downtown Chicago for franchisees to discuss the situation, internal emails show. Their choice of venue? A Ronald McDonald House, part of the nonprofit foundation whose stated mission is to “improve the health and well-being of children and their families.”

Since the unionization drive began, dozens of workers have filed complaints with the NLRB alleging elements of an anti-union culture in McDonald’s restaurants. Emmanuel Flores, 28, told Bloomberg he saw just such a culture firsthand at a company-owned restaurant in Monterey Park, California.

Flores said he endured months of lewd comments, sexual overtures and groping from supervisors and co-workers. Early this year, on the advice of a union organizer, he told his store manager about it.

The next day, Flores said, his shift hours were cut. Days later, during an informal staff meeting with him and other workers, the manager compared union activists to “leeches” and said “that even if we got paid $15 an hour, it wouldn’t matter because she would cut our hours,” Flores said. Flores filed complaints with California officials and the EEOC, and he was named as a witness in a retaliation complaint that the union filed with the NLRB. 

Trump’s fondness for McDonald’s is no secret. During his 2016 campaign, it was part of his standard fare; one order consisted of “two Big Macs, two Fillet-O-Fish, and a chocolate malted,’’ wrote his former campaign aides Corey Lewandowski and David Bossie in their 2017 book, Let Trump Be Trump.

McDonald’s soon met with senior members of the new administration. In July 2017, Trump’s first labor secretary, Alexander Acosta, sat down for dinner at The Smith, a popular restaurant near Capitol Hill, with Easterbrook and Sam Tatevosyan, the company’s top lobbyist, according to the official Department of Labor calendar. The next day, Acosta and Treasury Secretary Steve Mnuchin spoke at a McDonald’s lobbying summit, records show. Acosta declined to comment, as did a spokesman for Mnuchin.

McDonald’s said it hosts both Democrats and Republicans for such Washington meetings. “The company traditionally invites officials from the current administration to discuss topics relevant to the business—and did the same during the Obama administration,” the company said.  

Once Trump’s appointees began taking office, McDonald’s sought to end its long struggle at the NLRB. In December 2017, a lawyer for the company emailed a letter to the board’s new general counsel, Peter Robb. Robb prosecuted a landmark case against the American air traffic controllers’ union during President Ronald Reagan’s administration. The union was found to have engaged in an illegal strike, and Reagan fired more than 11,000 workers, a lasting blow to the American labor movement.

“Our request is straightforward,” said the McDonald’s letter, a copy of which was reviewed by Bloomberg News. “We ask that you use your prosecutorial discretion to end this waste of taxpayer resources and consider what your predecessor would not consider—a global resolution of the underlying unfair labor practice allegations.” The lawyer asked for a resolution that would not designate McDonald’s a “joint employer.”

Within a few months, the company got what it asked for: Robb’s office offered to settle the case with no joint-employer finding. The proposed settlement would have provided back pay to about 20 workers, in amounts ranging from about $30 to $50,000, and it required no admission of any wrongdoing. But the administrative judge overseeing the case, Esposito, rejected the settlement, calling it too lenient on the company.

The White House in effect aided McDonald’s in other ways. According to people who’ve worked in the administration, Acosta drew Mulvaney’s ire for dragging his feet on Labor Department rule changes, including making the agency’s “joint employer” standard more lenient. Colleagues thought Acosta was too concerned about provoking congressional Democrats, according to two people familiar with the situation. Trump’s aides repeatedly pressed Acosta’s staff during White House meetings about the status of the rules—and Mulvaney largely replaced Acosta in the process, taking final say over the new rules’ content and timing, the people said. 

Mulvaney tends to get more involved in policy than previous chiefs of staff because of his dual role as White House budget director, according to a White House official who spoke on background. When his Office of Management and Budget pushes back on an agency’s work, it’s for good reasons, the official said.

At the NLRB, Trump appointees have attempted to defang the joint-employer threat, despite encountering ethical snags. The Board tried in 2017 to overturn an Obama-era precedent on the issue, but then had to quickly invalidate that change after the agency’s ethics officer found that one of Trump’s appointees, Emanuel, had wrongly failed to recuse himself. The board is now trying to change the standard using its rulemaking authority instead.

Meanwhile, Robb has asked board members to overturn the judge’s rejection of his proposed McDonald’s settlement. Union advocates lodged a formal petition with the board, arguing that two of Trump’s appointees must recuse themselves from the case because they worked at law firms that McDonald’s hired to counter the Fight for $15 organizing and protest efforts.

On Nov. 19, the board’s Trump-appointed chairman, John Ring, released what he called a “first of its kind” internal ethics review, which clears a path for the board to set aside such objections. Ring is one of the two board members who’ve been urged to recuse; while he came to the board from a law firm that worked for McDonald’s, there’s no evidence that he personally worked for the company.

Ring’s unusual “ethics recusal report” last month concluded that each NLRB member can “insist on participating” in cases even if federal ethics officials say otherwise. While the ethics officials’ decisions may be binding, they’re not “self-enforcing,” the report found. So NLRB board members can overrule them simply by disagreeing with their legal conclusions, Ring wrote. He didn’t respond to a request for comment.

The McDonald’s case has generated 21,000 pages of trial transcript, with testimony from more than 100 witnesses. Judge Esposito called it “the largest case ever adjudicated by this agency.” The union’s pledge to appeal Thursday’s decision suggests that it could go on for years to come.

For now, at least, the company has friends in the White House. In April, Mulvaney spoke at McDonald’s latest lobbying event, where the joint-employer issue was a key topic. He wore a tie the color of the golden arches.

—With assistance from Leslie Patton and Ben Penn.

 

 

(Updates throughout with labor board’s decision. An earlier version of this story was  updated with additional comment from McDonald’s on refranchising strategy)

To contact the authors of this story: Lauren Etter in Los Angeles at letter1@bloomberg.netJosh Eidelson in Palo Alto at jeidelson@bloomberg.netHassan Kanu in Arlington at hkanu2@bloomberg.netMichael Smith in Miami at mssmith@bloomberg.net

To contact the editor responsible for this story: John Voskuhl at jvoskuhl@bloomberg.net, Flynn McRoberts

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