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

Typically under the franchise model, fast food corporations strike agreements with franchisees that dictate a variety of standards for selling food under their brand — but leave wages, hours and labor conditions up to the franchisee.

The model has provided inroads to business ownership for many minority entrepreneurs, supporters point out.

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

Joint employer?

The question of franchisors’ relationship to workers remains unsettled at the federal level. Across three presidential administrations the National Labor Relations Board has gone back and forth on whether to automatically consider franchisors and franchisees “joint employers.” The courts, including the California Supreme Court, have generally rejected that idea under current laws.

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

Studies have found franchisors can exert a significant amount of pressure and control over franchise business owners.

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

“Franchisees can respond to intensive franchisor monitoring and tight profit margins by unlawfully chiseling wages as the only cost variable that the franchisor does not directly monitor,” the law professors wrote.

The International Franchise Association disagrees, arguing the business model is defined by franchise owners’ independence in labor decisions. The fast food bill, they said, would reduce those owners to middle managers, and larger companies would pull back opportunities in California if they’re required to monitor labor law compliance.

“You’d be holding an entity responsible or assigning liability for things they don’t have control over,” said Jeff Hanscom, spokesman for the Washington, DC-based association which includes franchisors and franchisees. “You’re taking a franchise and turning it into the corporate entity.”

The Cheesecake Factory case

That argument holds some sway with lawmakers in the state Senate.

During a June hearing for the fast food bill before the Senate Judiciary Committee, some Democratic lawmakers questioned whether an automatic expansion of liability is necessary. Sen. Bob Wieckowski, a Fremont Democrat, pointed out that under current law a judge can already find a franchisor liable for a labor violation if it’s 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 California’s fast food bill.

To 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 worker center that pushed for joint liability in that industry in 2015.

Prior to that law’s passage, Aaron said, contractors often closed up shop or declared bankruptcy when faced with allegations of wage theft, only to reopen under another name or business entity later.

The new law has enabled the state’s labor commissioner to issue citations against larger and more prominent companies in cases of alleged wage theft.

In a highly publicized 2018 case, the California Labor Commissioner named the Cheesecake Factory jointly responsible with a janitorial services firm, saying they owed nearly $4 million to 559 janitorial workers who cleaned eight of the chain’s Southern California restaurants. It was one of the state’s largest cases of wage theft.

The state has brought similar cases against electric car manufacturer Tesla for its contractors allegedly underpaying janitors at its San Jose factories, and e-commerce giant Amazon for a contractor allegedly failing to pay overtime to its delivery drivers.

The power of the purse

Labor experts said it’s too soon to tell if joint liability has made it easier for the state to recover unpaid wages. State investigations of wage theft take months. And when the state cites employers, seeking unpaid wages and penalties, employers usually appeal, setting off administrative hearing processes that can take years.

The Cheesecake Factory case is still awaiting a hearing, four years later. Advocates expect a resolution this year, Aaron said. The Maintenance Cooperation Trust Fund represented the workers interviewed in that case; its director at the time, Lilia Garcia-Brower, is now the California State Labor Commissioner.

Officials in 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 workers file each year.

Still, legislative staffers predicted joint liability would “almost certainly” improve labor compliance in fast food by forcing the larger businesses to monitor the behavior of franchisees.

Aaron said that has been evident in the janitorial industry since the 2015 law change. The worker center meets with client companies that hire janitorial contractors to educate them about labor laws.

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

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