Carl Recine/Reuters
A McDonald's employee with an order for a customer at the drive thru, as the spread of the coronavirus disease (COVID-19) continues, Newcastle-under-Lyme, Britain, March 23, 2020.
- McDonald's US president Joe Erlinger pushed franchisee groups to support paid sick leave and "hero" raises for workers during the coronavirus pandemic in a leaked letter.
- Erlinger also shot back against franchisees' accusations that McDonald's was not doing enough to support them financially, saying franchisees' demands fail to recognize the company has "finite resources."
- With 95% of McDonald's locations owned by franchisees, the decisions around workers' pay and benefits for the vast majority of workers in the US are determined by these independent owner-operators.
- McDonald's system has faced backlash for its response to the coronavirus pandemic, with workers going on strike in Chicago on Wednesday.
- Visit Business Insider's homepage for more stories.
McDonald's is pushing franchisees to do more to support workers during the coronavirus pandemic, calling for owner-operators to give "hero" raises and paid sick leave, according to a leaked letter.
Meanwhile, franchisees are demanding more support from McDonald's corporate office, arguing that the company hasn't done enough financially for the owner-operators who run 95% of locations in the US during the pandemic.
In an April 9 letter obtained by Business Insider, Joe Erlinger - the president of the US business - asked McDonald's National Franchisee Leadership Association and the National Owners Association to support paid leave in locations, 10% "hero" pay for employees during the pandemic, and establishing a worker emergency relief fund. Erlinger said many of these measures had already been rolled out in company-owned locations.
"Imagine the brand impact such moves would engender; overnight McDonald's could transform our employer reputation and customers' perceptions," Erlinger wrote.
McDonald's has faced backlash for its response to the coronavirus pandemic on topics such as paid sick leave and taking sufficient action to keep workers safe. On Wednesday, workers are striking in Chicago, after a McDonald's employee at a franchisee-owned location filed an OSHA complaint saying employees were not alerted when a coworker contacted COVID-19.
While McDonald's offers sick leave at company-owned stores and expanded its policy to cover two weeks of paid sick leave in COVID-19 related cases, franchisees control the benefits of most of the more than 800,000 McDonald's workers in the US. David Tovar, the vice president of US communications at McDonald's, told Business Insider in early April he was "very confident that the vast majority of employees who work for McDonald's are going to receive some type of paid sick leave."
In the letter, Erlinger also pushed back against the NOA's assertions that McDonald's has not done enough to support franchisees financially, as same-store sales have plummeted 13%.
"Your letter suggests that owner/operators in our U.S. business are losing faith in management, but this faith seems predicated on unlimited financial support," Erlinger wrote. "If that's how the NOA seeks to define its relationship with McDonald's, then in reality, we don't have a relationship, and I am extremely disappointed and disheartened by this."
The Wall Street Journals' Heather Haddon broke the story of the recent tensions between franchisees and McDonald's corporate on Tuesday.
Business Insider obtained a copy of Erlinger's April 9 letter to NOA president Blake Casper, republished in full below. McDonald's declined to comment further on the letter. The NOA did not respond to Business Insider's request for comment on the letter.
If you're a McDonald's worker or franchisee with a story to share, email ktaylor@businessinsider.com.
Read McDonald's presidents' full letter to franchisees here:
Dear Blake,
I understand and recognize that this is a deeply unsettling time for the U.S. system - all three legs of the stool. The coronavirus pandemic represents the greatest threat that modern society has ever faced and I am proud to see the entire McDonald's system rise to this historic challenge.
As you know, at the beginning of the crisis, Chris outlined five key principles that are guiding our global response:
- We're All In This Together
- Think and Act With a Long-Term Mindset
- Be Transparent With Our Stakeholders
- Lead By Example
- Stay True to Our Purpose: We Serve Communities
I believe McDonald's has stayed true to these commitments, which is why I found your letter dated April 7, 2020 to be disappointing, and not in the spirit of the way we have worked together since I rejoined the U.S. Business.
McDonald's has provided unprecedented levels of financial support to U.S. owner/operators to inject liquidity into our system during this crisis. Specifically:
- Rent and Service Fees
- No base rent was drafted on April 1, nor will any be drafted on May 1 and June 1.
- For organizations with greater than 25% sales decline in the last 14 days of March, we have deferred rent and service fee payments until August 10, interest free.
- We will defer April rent and service fees (for April sales) for ALL restaurants until September 10, interest free.
- We will defer May rent and service fee payments (for May sales) for organizations with greater than 25% sales decline in the month of May to October 10, interest free.
Initial/Franchise Fees:
- We are deferring all initial/franchise fees from April 1 through June 30 for three months from their original due date.
Development Projects:
- We have suspended drafts for all development projects until September 15, interest free.
- We have delayed all construction ground breaks through June 30, and will honor our financial commitments for those projects that move into 2021.
In total, McDonald's has provided U.S. owner/operators with approximately $900M of additional liquidity. Beyond our company support, owner/operators have benefited from improved loan terms from lenders and payment terms from suppliers. No other major franchisor has done more than McDonald's to support its franchisees.
It's important to emphasize that our financial support is intended to help owner/operators survive this crisis. McDonald's is not able to guarantee owner/operator cash flows or equity values. I have been clear about this on our webcasts in referring to my belief that the McDonald's system (the company, owner/operators and suppliers) will not remain whole, and we all should expect our profits to be down compared to 2019. The NFLA Owner/Operator Economic Franchisee Relief Plan fails to recognize that the company has finite resources. As a result, we must be very targeted and judicious in where we offer financial support and for how long.
Our approach to March rent and service fees reflects the company's fact-based, transparent and equitable approach. We are confident that the 1/3 of owner/operators who will be asked to pay March rent and service fees have strong liquidity, are well-capitalized and able to meet their short-term financial obligations. 65% of U.S. owner/operators are able to defer March rent and service fee payments totaling approximately $180 million, and not just for 14 days, but
until August.
Almost certainly there will be more difficult decisions ahead. Our system, like the rest of the world, will look different after the current coronavirus pandemic passes. Through this, I remain confident that McDonald's USA will continue to have the flexibility to offer targeted financial support to owner/operators who are most deserving of assistance - those who have availed themselves of all available resources and done all of the right things, but are in financial distress regardless. This will be done within the context of our obligations to creditors and shareholders and our continued long-term partnership with suppliers, who are essential to the ongoing viability of McDonald's.
And while this crisis certainly poses challenges, it also offers us leadership opportunities. On Wednesday, you would have seen me, along with Chris and other senior executives, make voluntary, tangible demonstrations of our leadership priorities via a meaningful salary reduction.
Similarly, the NFLA and NOA could demonstrate tangible leadership during this crisis by supporting the following:
- Endorsing two weeks of pay for any restaurant employee whose health is impacted by COVID-19.
- Supporting 10% "hero" pay for crew members who are working during this crisis over the next 60 days.
- Establishing an employee emergency relief fund to provide one-time payments to employees in company-operated and owner/operator restaurants who are facing hardship due to COVID-19. The company will match owner/operator contributions.
- Ensuring the health and wellness of employees and customers at McDonald's by, among other things, committing to completing wellness and temperature checks at the beginning of every restaurant employee's shift.
- Reviewing current policies and ensure that not only all crew get free food while they are working, but a 50% discount when they're off work.
As you know, McDonald's has already adopted many of these measures in our company-owned restaurants because they are the right thing to do for our people and we stand ready to do more in partnership with owner/operators. Imagine the brand impact such moves would engender; overnight McDonald's could transform our employer reputation and customers' perceptions.
We are also working through a potential national campaign to support first responders including medical professionals, police officers, firefighters and military personnel through this crisis in a manner that only McDonald's can. Your support and that of our entire owner/operator body will be necessary to move this exciting initiative forward. I thank and applaud the initiative of many owner/operators who have embarked on similar efforts within
their communities. A national effort will even more effectively demonstrate to America what the Golden Arches is all about.
Frankly, we'd much rather have owner/operators allocate their valuable resources to fund these types of important efforts than buying up McDonald's stock, as you referenced in your letter. For me, there certainly seems to be a disconnect between owner/operators' financial plight and their buying significant amounts of stock.
Around the world, McDonald's is deeply committed to maintaining strong, productive relationships with its franchisees. I have experienced this at work during my time in our international business and I am confident that the global state of franchisee relations is excellent. Since taking on this role, I have demonstrated my commitment to, and the importance of, building upon our relationship in the U.S. business through my words and actions. And, I have surrounded myself with a team that has these same values.
Your letter suggests that owner/operators in our U.S. business are losing faith in management, but this faith seems predicated on unlimited financial support. If that's how the NOA seeks to define its relationship with McDonald's, then in reality, we don't have a relationship, and I am extremely disappointed and disheartened by this.
The relationships that I am building, and will continue to build, are based not on the company's ability to financially support owner/operators, but instead upon the following:
- Passion for our restaurant teams and crew members and the service that they provide
for customers - Collective dedication and commitment to the brand
- Belief that joint ownership of problems and solutions provides more fruitful and beneficial outcomes
- Respect, transparency and openness with each other
- Commitment to work collaboratively within an owner/operator leadership structure that works to unify the system
- Understanding that we are all in this together
I am committed to managing and leading McDonald's USA for the long-term. We have a tremendous brand and a phenomenal system. As we've done quite successfully for the past 65 years, McDonald's management will carefully balance all three legs of the stool to ensure all stakeholders continue to prosper once we exit this crisis.
Thank you.
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