McDonald’s has been in the headlines recently, and not for re-launching the McRib or promoting new healthier side items. Instead, the fast food chain has been in the news because employees around the world have informally begun to demand higher wages in a movement being labeled as, “#McStrike”.
While these types of movements usually garner public support, as is often the case, the realities of forcing higher wages at McDonald’s belie the storylines that make for good news. A mandatory wage hike would mean even more financial struggles for franchisees, and it may ultimately do more harm than good for the chain’s frontline workers.
The Realities of a Mandatory Wage Hike at McDonald’s
While most people tend to think of McDonald’s as a huge corporation with restaurants around the globe, the reality is that “corporate” McDonald’s only owns about 10 percent of the fast food chain’s stores worldwide. The remaining 90 percent are owned by franchisees, many of whom are “mom and pop” operators who have invested their life’s savings in a restaurant with a proven system and a well-known brand.
But, despite McDonald’s ubiquity, for most of these franchisees, profit margins are razor thin. On top of making payroll while selling Dollar Menu food items, franchisees must also pay monthly royalties to McDonald’s, and they must constantly make updates and upgrades to accommodate new offerings and changes to the chain’s trade dress and system standards. While many franchisees are able to operate their stores for years, the reality is that this is often a long-term struggle to survive.
If forced to pay their employees higher wages, many McDonald’s franchisees would likely face the risk of defaulting under their franchise agreements. We are already seeking termination proceedings far too frequently; and, if franchisees are forced to pay more to their workers without a corresponding increase in revenue, they may eventually need to choose between paying their workers and paying their franchisor. Theoretically they could reduce employees’ hours or raise prices, but these efforts would compromise customer service and likely drive many core customers away, and they would both be counterproductive to the purpose of increasing wages in the first place.
Franchisees are Not Adequately Protected Against Termination
Although some states have franchise relationship laws that protect franchisees against termination in certain circumstances, these laws are not broad enough to insulate franchisees who are unable to succeed because they are unable to make payroll. They also do not exist in all states. So, if a wage hike leads to financial strain as we suspect, we would also expect to see a rash of terminations. Sure, McDonald’s does not want to close its stores, but it may be able to afford paying workers higher wages, and there will always be someone else who believes they can succeed as a McDonald’s franchisee.
Contact National Franchise Lawyer Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchise lawyer who has over 30 years of experience representing franchisees in termination proceedings and franchise litigation. If you own a franchise and are at risk for defaulting under your franchise agreement (or are currently facing termination), you can call (202) 293-3947 or inquire online for a free consultation.