As McDonald’s struggles to weather years of labor unrest and increasing government scrutiny of its treatment of workers in America, its international operations are now coming under similar pressures that could ultimately force the company to revamp its relationship with workers around the world.
The threats to the company take two very different forms and come from separate continents. Unions asked European tax officials to investigate McDonald’s on Wednesday over its alleged exploitation of a tax shelter in Luxembourg. And in Brazil on Tuesday, another group of unions filed a suit over alleged worker abuses including wage theft and poor working conditions.
The company’s alleged misdeeds in Brazil have a very human face. The suit alleges “unwholesome and unsanitary working conditions, time-clock fraud and failure to pay mandatory unemployment and retirement insurance…below legal or contractual minimum wages, forced double-shift work without breaks, forced workers to take in-restaurant lunch breaks with employer-supplied food and failed to make mandatory severance payments,” according to Reuters.
Some of those violations hint at how much more robust worker protections are in Brazil than in America, but others — timecard manipulation and wage theft in particular — echo key complaints from U.S. frycooks and burger-slingers. The suit purports to show that Arcos Dorados Holdings Inc. — or Golden Arches Holdings, in English — has been conducting such abuses for 30 years. If the suit succeeds, the company could be barred from opening new stores in Brazil until it proves it has ended the abuses, and Arcos Dorados could be fined nearly a third of its total profits.
In Luxembourg, whose population is one 368th the size of Brazil’s, McDonald’s is accused of dodging taxes and depriving European governments of huge piles of tax revenue. Luxembourg specializes in luring large multinational corporations to its tiny borders by offering generously low corporate tax rates that allow a clever, aggressive accountant to drastically reduce what her company has to pay in taxes. It isn’t alone in that tax-haven status — Ireland, the Netherlands, and other members of the european community have used similar tricks to draw Apple, Google, Microsoft, and others — but it is one of the foremost practitioners. While McDonald’s stores in Europe had previously paid royalties to Delaware-based McDonald’s Corp., the company switched up its style in 2009 by transferring its intellectual property rights to a Luxembourg-based subsidiary and instructing store owners to make the royalties payments to that firm. Luxembourg taxes royalties from intellectual property at just 5.8 percent, compared to its 29.2 percent corporate tax rate on other forms of royalties. Such exploitation of the gaps in the international business tax code is generally legal. But the report notes that similar arrangements in other European tax havens have recently been shown to include secret handshake deals that even further reduce corporate tax payments, in violation of the rules. That’s why the unions want a formal investigation.
While labor groups have long campaigned to bring public pressure against the company, these stories indicate that worker advocates are trying to draw official institutions and governments into the fray. The escalating pressure on the company to do right by workers and the public comes hard on the heels of major positive developments for those groups at two other giant American companies with reputations for exploiting their employees. Walmart and the retail conglomerate that runs TJ Maxx each announced significant raises for their worst-paid employees in the past week, something that will directly benefit more than half a million American workers and indirectly boost the entire economy by putting more money in working families’ bank accounts.
McDonald’s has resisted raising wages in the U.S. despite more than two full years of strikes, sit-ins, protests, and walkouts by workers in every corner of the country. But it may not be able to hold out much longer, and a corporate filing on Wednesday included a warning to shareholders. “The trend toward higher wages and social expenses could have a negative impact on the margins of our Company-owned restaurants,” the company wrote in its annual corporate filing with the Securities Exchange Commission. “Additionally, economic action, such as boycotts, protests, work stoppages or campaigns by labor organizations, could adversely affect us or the franchisees and suppliers that are also part of the McDonald’s System and whose performance has a material impact on our results.” The sentences appear under a heading that labels worker unrest as one of the company’s “challenges with respect to talent management.”
Many other fast food companies and retailers turn tidy profits despite paying higher wages and providing benefits to workers. Worker wages translate into consumer spending, and consumer spending is what drives economic growth overall and consumption of goods and services targeted to low- and middle-income people in the first place. McDonald’s might even end up benefiting financially from breaking with its long-time habit of paying workers so little that they must rely on food stamps and other taxpayer-funded safety net programs to survive.