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President Obama’s Stance on Minimum Wage and Overtime Puts Him at Odds With McDonald’s

By Daniel B. Kline – Mar 17, 2014 at 12:31PM

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The president's plan to raise the minimum wage and change how overtime is paid puts him directly in opposition to the fast food giant.

President Barack Obama gave a speech from the White House Friday that could put him in direct opposition to the Golden Arches.

While Obama did not mention McDonald's (MCD 0.93%) by name, he wants to change overtime rules and how lower-paid workers are compensated -- something that the giant fast food chain is currently being sued over in three states.

"Overtime is a pretty simple idea. If you have to work more, you should get paid more," Obama said at the White House. "Unfortunately today, millions of Americans aren't getting the extra pay they deserve."

McDonald's facing lawsuits

Lawsuits were filed recently in California, Michigan, and New York claiming that McDonald's uses a number of different tactics to avoid paying workers fairly. The suits, which are seeking class action status, could affect around 30,000 workers, USA Today reported.

The suits allege that McDonald's has forced employees to work off the clock, not paid them overtime, and struck hours off their time cards, CNN Money reported . 

"We've uncovered several unlawful schemes, but they all share a common purpose -- to drive labor costs down by stealing wages from McDonald's workers," said Michael Rubin of Altshuler Berzon LLP, an attorney who represents California workers, according to CNN.
CNN also reported a number of other charges that were in the lawsuits.
  • Workers in California claim that McDonald's and its franchisees did not pay them for all of the hours they worked, and did not give them timely breaks.
  • The employees in Michigan allege that they would start getting paid only when customers walked into the restaurants, even if they showed up to work hours earlier.
  • New York McDonald's workers claim the chain did not reimburse them for the cost of cleaning uniforms. They say it drives some workers' real wages below the minimum wage.

The suits seek back pay and other damages.

McDonald's responds to lawsuits

McDonald's said in a statement that it is investigating the allegations and will take any necessary actions.

"McDonald's and our independent owner-operators share a concern and commitment to the well-being and fair treatment of all people who work in McDonald's restaurants," according to the statement in USA Today.

Obama wants to raise the minimum wage

Obama is also risking angering McDonald's and other low-wage companies by changing the laws regarding who is eligible for overtime. Currently hourly employees receive time-and-a-half if they work over 40 hours a week. Salaried employees are not eligible for overtime as long as they make more than $455 a week.

"If your salary is even a dollar above the current threshold, you may not be guaranteed overtime ... your employer doesn't have to pay you a single extra dime," Obama said. "And I think that's wrong."

The president has also called on Congress to raise the federal minimum wage to $10.10 an hour.

It's not just McDonald's that opposes these increases

While low-paid workers are of course in favor of the idea of the government mandating that they get a rise, others are not as supportive. Some argue that artificially increasing wages (beyond what the labor market forces companies to pay in order to attract workers) has a clear blowback effect on the rest of the economy. The companies hurt the worst, they argue, won't be the giant corporations but smaller players.

"Changing the rules for overtime eligibility will, just like increasing the minimum wage, make employees more expensive and will force employers to look for ways to cover these increased costs," Marc Freedman, the executive director of Labor Law Policy at the U.S. Chamber of Commerce, told CNN. "Similar to minimum wage, these changes in overtime rules will fall most harshly on small and medium sized businesses."

How much will this hurt McDonald's

It's impossible to pinpoint exactly how many people work in a McDonald's because the company made about a third of its $27 billion in 2012 income from franchised restaurants. The employees of those restaurants work at a McDonald's but they work for the franchisee's corporate entity not directly for McDonald's Corp.

Worldwide McDonald's had $4.7 billion in employee payroll and benefit expense in its company-owned stores and its corporate offices. Since the company did over $18 billion in global revenues in company-owned stores in 2012 -- about $4.5 billion of which was in the U.S. -- roughly you can assume that McDonald's spend over $1.1 billion on U.S. employees in company-owned stores.

"In the United States alone, they employ 760,000 people. It is believed that one in every eight Americans has worked at McDonald's at one time or another," Lawrence Lewitinn wrote on Yahoo Finance.

Many of those workers are part-time and most are hourly employees (though higher-level supervisory positions are not). Pay varies according to market but McDonald's crew members average $7.44 an hour, according to Cashier pay averages $7.79 and even hourly shift managers average $9.75, according to the job data site. 

A large part -- if not the majority -- of McDonald's workers would be affected by the changes the president wants to make and that would be a huge hit to the company's bottom line.

McDonald's pays what it has to

The president's goals may be noble and workers may applaud him, but the free market already has a mechanism to raise wages. If McDonald's can't hire workers at the rate it wants to pay it will have to pay more or not fill the job. Since restaurants need employees to operate, the company must pay whatever rate is required to fill its staff with people who it believes can do the work.

McDonald's of course must follow the laws of the land and if it has been cheating workers out of legally required pay, that will come out in court.

Nobody forces workers to accept jobs at McDonald's or any other low-paying company. The company should have the right to pay whatever hourly rate it wants without the president interfering. If that rate is too low then the company won't find workers -- or it will only find ones that do a bad job and negatively impact business.

It's good that the president cares about the struggles of the nation's poor but he should be working to build an economy that is so healthy that McDonald's can't find anyone willing to work for minimum wage. He needs to raise the whole economy and let the free market dictate wages.

Daniel Kline has no position in any stocks mentioned. He plans on drinking at least one Shamrock Shake this year. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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