The Biden administration intends to try (once again) to move forward the nomination of Deputy Labor (DOL) Secretary Julie Su to be promoted to head of the department. Last year, Su’s nomination failed in no small part because of her disastrous views on independent contractors and franchise businesses. The policies she implemented during her time as Secretary of Labor and Workforce Development in California made it very difficult for businesses to hire contractors or to adopt a franchise model. This kept even moderate Democrats from supporting her nomination.
Despite this failure, the administration is intent on going forward with Su’s vision for American labor policy. Su has been in charge of the department in an acting role – even as it is clear the Senate does not consent. Now, key Senate time and effort will be used for another confirmation battle on a nominee who has changed nothing since she last failed to receive support from the majority of the body.
Meanwhile, the administration is pursuing an aggressive antitrust agenda through the Department of Justice (DOJ) and the Federal Trade Commission (FTC). One of the latest high-profile cases to make headlines is that against American fast-food giant, McDonald’s. The 7th Circuit Court of Appeals revived a lawsuit from 2018 that claims McDonald’s Corporation’s rules against franchisees hiring employees from other franchisees is anti-competitive.
McDonald’s famously operates under a franchise model – and is the largest such company in the world. This means they offer business owners the rights to use McDonald’s recipes, intellectual property, and branding. Each McDonald’s location is individually owned by the respective franchisee. This allows the franchisee greater autonomy and flexibility, while it allows McDonald’s Corporation to grow and create jobs without having to micromanage details at every location.
Julie Su, however, championed initiatives that would classify franchisees – and their employees – as employees of the broader branding company, rather than their own entity. This was a key provision of California Assembly Bill 5 (AB 5), which Su shepherded through to law in California. She continues to support this restrictive vision of franchising as acting head of labor policy nationally.
This view of franchisees and labor policy conflicts with the current lawsuit against McDonald’s Corporation. The lawsuit was filed by former McDonald’s employees who were upset that the corporation had a policy in place to prevent franchisees from poaching workers from other franchisees. The FTC and DOJ – for their part – submitted an amicus brief supporting the lawsuit against McDonald’s, claiming this illegally suppressed wages.
The thinking that undergirds this lawsuit is that franchisees ought to be separate entities, freely competing for the labor of employees with competitive pricing. If, however, it is the administration’s contention that franchisees are all employees under a single corporate umbrella – as Su, the acting Secretary of Labor has said repeatedly is her view – then, there is no competition to be stifled, because a company cannot compete against itself, and this practice is merely a single company policy.
On one hand, the FTC and DOJ are supporting lawsuits against American franchisees for agreeing to anti-poaching provisions. On the other, the DOL claims that these franchisees are nothing more than employees in different branches of a single corporation. The two views are entirely incongruous.
This was destined to happen at one point or another. The bold, neo-Brandeisian vision of antitrust shepherded by FTC Chair Lina Khan and Jonathan Kanter (the head of the DOJ’s Antitrust Division) is increasingly broad and nonsensical. It attacks just about any business as “legacy monopolists,” so long as the business is sufficiently large – which McDonald’s certainly is. The labor vision championed by Su reflexively attacks non-traditional business models. The two were destined to cross paths at some point.
Additionally, neither view makes sense in the context of this lawsuit. While the DOJ and FTC may rightly view franchisees as independent entities, they ignore two key facts. The first is that McDonald’s has not had a “no-poach” policy in place for years. They are seeking a solution to a problem that seems to no longer exist. Secondly, franchisees enter into licensing agreements freely with the parent corporation. McDonald’s Corporation has a basic right to insist that those to whom they license their products do not harm their other licensees. There is no coercion, nor is it anti-competitive for McDonald’s to protect itself in this way.
Julie Su’s nonsensical labor vision has been rejected by the Senate once. It is now, implicitly, being rejected by other agencies of the federal government. The administration should look in the mirror and wonder why it insists on going down this road with Su one more time. It will end much like this McDonald’s lawsuit – a jumbled, confusing mess.
