NLRB eyes setting new ‘joint employer’ standard

Agency seeks to overturn 2015 decision affecting franchisors, service providers


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In an important, but expected, move, the National Labor Relations Board has issued a proposed rule revising the legal test that is used to determine whether two employers are considered “joint employers” under the National Labor Relations Act.

Consistent with the Trump administration’s promise to undue certain Obama-era labor policies, the proposed rule would overturn the NLRB’s 2015 Browning-Ferris Industries of California decision, which expanded the definition of joint employer and categorized many more independent companies as joint employers. The Browning-Ferris decision was seen at the time as a dramatic shift in the law that upended nearly 30 years of precedent on the joint employer doctrine.

The proposed rule comes as the NLRB makes up for lost time during the first two years of President Trump’s presidency, when there were delays in nominating new members to the board and appointing a general counsel for the board. Now that the NLRB’s administrative head is in place and the board itself is fully staffed (with a conservative majority), it is starting to make and issue policy decisions.

While the reversal of Browning-Ferris through proposed rulemaking is not unexpected, the scope of the joint employer rule has significant consequences for employers and employees alike. A joint employer may be required to bargain with a union representing jointly employed workers, could be subject to joint and several liability for unfair labor practices or other violations of the NLRA committed by the other employer, including some whistleblower claims, and may be subject to picketing that would otherwise be unlawful.

Under the broader test from Browning-Ferris, two entities are deemed joint employers based on the mere existence of reserved joint control, indirect control or control that is limited and routine. This contrasts with the prior standard, which required the putative joint employer to exercise actual control over essential employment terms, with such control being “direct and immediate.” The Browning-Ferris decision drastically increased the universe of potential joint employers and was the subject of intense negative scrutiny, including congressional hearings focused on overturning the decision and at least one lawsuit challenging its validity in Federal Court, which is still pending.

Examples of situations found to be a joint employer relationship include service providers and their clients and franchisor-franchisee relationships. In fact, there is an ongoing case involving McDonald’s franchisees that hinges in part on whether McDonald’s is a joint employer of workers that are directly employed by its franchisees. Under the Browning-Ferris test, these workers may be considered employees of McDonald’s as the parent company. However, with that test on the brink of extinction, McDonald’s is certainly expecting a more favorable result on the joint employer question. A finding that McDonald’s is a joint employer would make the company liable for labor-law violations committed by its franchisees, and would require it to bargain with restaurant workers who unionized.

The NLRB’s proposed rule would make clear that an employer will be considered a joint employer of a separate company’s employees only where that employer possesses and exercises “substantial direct and immediate control” over the essential terms and conditions of employment (such as hiring, firing, discipline, supervision and direction) of the second company’s employees. Even where an employer exercises direct control over another employer’s workers, it will not be held to be a joint employer if such control is “limited and routine.”

The board has made it clear that it prefers to set the joint employer standard through rulemaking rather than case-by-case determinations, in part to “foster predictability and consistency regarding determinations of joint-employer status in a variety of business relationships.”

This, in the board’s view, will promote “labor-management stability.” Given the confusion that has resulted from prior NLRB decisions on joint employment and the fact that the NLRB was willing to overturn three decades of precedent in Browning-Ferris, this may be a wise decision.

In 2017, the NLRB had actually voted to overturn Browning-Ferris in a separate case, but that decision had to be vacated because one of the members of the board had to recuse himself. The rulemaking process instead gives the public and business community more control over the outcome, as opposed to relying on a private lawsuit involving one type of business or employment arrangement.

Through rulemaking, both the public and interested parties with experience in a wide range of complex employment relationships will have input on proposed changes and become stakeholders in the outcome through the public comment process. The process will also allow the NLRB to clarify what constitutes joint-employer status under various hypothetical scenarios.

Three of the four current members of the board have approved the proposed rule, with the lone Democrat on the board dissenting. It is open for public comment through Nov. 13. (Comments can be submitted via hard copy or electronic filing at regulations.gov.)

It is expected that the final rule will become effective within approximately 30 days after publication in the Federal Register. 

Nicholas F. Casolaro, an associate in the Employment Law Practice Group at the law firm of McLane Middleton, can be reached at 603-628-1246 or nicholas.casolaro@mclane.com.

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