Joel Dillard & Associates

Making news lately, Uber drivers are employees (at least according to one state agency) while McDonald's is the joint-employer of all the franchise locations (at least according to one independent federal labor administrative prosecutor).

This is only the latest in a long line of battles over who is covered by various labor and employment laws. Unfortunately, Congress is fond of circular definitions for these terms. For example, from Title VII's definition The term 'employee' means an individual employed by an employer . . . or the NLRA definition The term 'employee' shall include any employee, and shall not be limited to the employees of a particular employer . . . or the term 'employer' includes any person acting as an agent of an employer, directly or indirectly . . . .

So the text of the law itself is comically unhelpful. The courts have generally said that the intention of Congress was to adopt a very broad definition, but have created a number of limits based on defining exclusionary categories, i.e., that independent contractors are not employees.

Uber employees

One test for employee which has gained broad acceptance is what is called the economic realities test. This test lists a bunch of factors - like who owns the tools, who directs the day-to-day work, etc - but the purpose of the test is to try to discern whether the business is one where the alleged employee is essentially dependent on the alleged employer. In other words, is this alleged employee really an independent business-person, an entreprenuer, working for clients?

In its analysis of Uber, the California Labor Commisioner focused primarily on two points: (1) that Uber had a ton of rules governing what the drivers did, down to the age of the cars they drove and the prices charged and paid; and (2) implicitly, that the drivers generally only drove for Uber, not for other companies, i.e., that Plaintiff would not have been able to perform the work without Uber.

In my opinion, these points do get to the economic realities here. To see this, consider the case of pizza delivery. Though driving their own car, these drivers are employees because their business depends on one pizza store, and the store has all the essential tools of control in its power. Hypothetically, suppose that a pizza store created a new business entity, and this new entity created an separate app which it claimed was a neutral technological platform for coordinating pizza delivery. But the app used the same process to pick drivers, required them to follow all the same rules, and facilitated the same basic service - coordinating the delivery of pizza from one store to any number of customers.

The economic reality here is the same - these are still employees, and the change is really only a formal one of ownership of the app.

We can vary this hypothetical in a number of interesting ways which lessen the connection, and could make the drivers into contractors. Suppose, for example, that the app covered many unrelated pizza chains, and the drivers could deliver for any or all of them. Suppose there were multiple apps and the drivers generally worked for more than one at a time. Suppose that the price of delivery was set by drivers (and/or driver companies) bidding on deliveries, perhaps by neighborhood, or perhaps using customizable algorithms for instantaneous automatic bidding.

These changes get us closer and closer to the app creating an authentic marketplace, a neutral technological platform for connecting buyer and seller. There can still be rules - like Amazon, eBay, or Etsy with its sellers and buyers - but a completely dependent, dominant relationship is not going to be permitted to masquerade as independent contracting.

McDonald's Joint-Employer

The McDonald's issue is like the reverse of the coin - we know that the man at the drive-thru window is an employee, but whose employee is he? The question is almost never easy, and in McDonald's case it is particularly difficult. I think most people know that, unlike Chipotle, the behemoth known as McDonald's is actually one large IP/contract repository called a franchise while the locations themselves are all owned and operated by other, smaller companies.

So is the franchise the employer, or is the location the employer, or both? Usually, the answer has been only the location. But this conclusion generally flies in the face of the economic realities we've been discussing. True, the franchise doesn't set wages. But, as noted in a recent article, [w]hile franchisors don’t set wages directly, the fact that they set almost every other input and control the levels of fees paid to them means that they effectively determine what franchisees can afford to pay their workers. In other words, the franchise contractually specifies everything about the work and the work environment, down to the uniform (not just design, but the uniform supplier, the price of the uniform, etc. etc.) The franchise may even have mandatory HR policies covering every location.

In this context, it better reflects the economic realities - and will result in more uniform law enforcement - to hold this kind of franchise responsible for labor law violations of its locations. So, for example, since McDonalds has a detailed labor policy, and has conducted a coordinated response of all its locations to efforts at union organizing, it should be responsible for labor law violations committed in that coordinated response. This is the conclusion of the NLRB's General Counsel in issuing complaints against McDonalds.

But this isn't to say that the GC will go after any and all franchises. Other franchises adopt a less micro-managing approach to labor relations and employment issues, and the General Counsel has also found that these franchises shouldn't be held responsible as joint-employers.

Personally, I think it might make more sense to hold all franchises responsible. The franchise business model depends on creating a uniform appearance and expectations in the customer for all locations. In this way, the franchise is effectively taking public credit for the quality of service provided at the locations, and should be expected to take responsibility for legal violations as well. I recognize that this logic, in a sense, proves too much in that it could be used in a number of other areas where franchises have traditionally avoided liability. It also clearly isn't current law. But the franchise model has been abused too many times and too many ways, and I think it may be time to recognize economic realities, and treat at least some of these businesses as integrated enterprises.

(Thanks to Chris Cyrek for asking about this.)

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