NLRB Finalizes New Joint Employer Standard

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On February 26, 2020, the National Labor Relations Board (NLRB) published its final rule on a new joint employer standard. The new rule will take effect beginning April 27, 2020. NLRB Chair John Ring proclaimed, “This final rule gives our joint-employer standard the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy.”

Joint Employer Implications

The question of joint employment status under the National Labor Relations Act affects employee rights and employer obligations for private sector companies. Employers found to be joint employers:

  • must bargain with a union that represents any jointly employed workers,
  • face potential liability for unfair labor practices that the other employer committed, and
  • could be subject to union picketing or other economic pressure.

New NLRB Joint Employer Standard

Under the new standard, the NLRB will only find joint employment where a business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.

The rule further defines the operative terms of the new standard.

“Essential terms and conditions of employment” means “wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.”

“Substantial direct and immediate control” means “regular or continuous consequential effects”. The rule clarifies that any direct control that is “sporadic, isolated, or de minimis” will not be enough to warrant a finding of joint employment.

The rule contains additional analysis regarding “direct and immediate control” for each of the eight “essential terms and conditions of employment”. For example, “An entity exercises direct and immediate control over wages if it actually determines the wage rates, salary or other rate of pay that is paid to another employer’s individual employees or job classifications.”

History of the NLRB’s Joint Employer Doctrine

Browning-Ferris

The NLRB had relied on a similar employer-friendly joint employment standard for decades until 2015. Then, in a case involving Browning-Ferris Industries of California, a pro-labor NLRB took a more expansive view of the joint employer relationship. In Browning-Ferris, the Board found two businesses to be joint employers where they both met the common law definition of employer and shared or codetermined matters governing the essential terms and conditions of employment. Under Browning-Ferris, an entity could become a joint employer even without actually exercising control over another employer’s employees. It was sufficient that the entity reserved the right to exercise control over the terms and conditions of employment of another employer’s employee.

The International Franchise Association and the U.S. Chamber of Commerce conducted a study on the financial impact of the Browning-Ferris decision on the American economy. They reported that the Browning-Ferris joint employer standard cost the U.S. economy $33.3 billion per year, considering lost jobs, stunting of job growth, and a significant increase in litigation involving franchise businesses.

Hy-Brand

On December 14, 2017, the NLRB issued a unanimous decision in a case involving Hy-Brand Industrial Contractors, Ltd. that overruled the Browning-Ferris joint employer test. The Hy-Brand decision reverted to the pre-Browning-Ferris joint employer standard. However, the NLRB vacated its decision in Hy-Brand after ethics concerns arose regarding Board Member Bill Emanuel’s participation in the case. Member Emanuel had worked for the Littler Mendelson firm when it represented a party that had been involved in the Browning-Ferris case that Hy-Brand reversed. Emanuel explained that he had not known of his firm’s past involvement in that previous case.

Response to the New Joint Employer Rule

Worker Advocate groups and unions strongly opposed the new joint employer standard. They argue that it hurts low-wage, African American, and Hispanic employees and incentivizes businesses that mistreat workers to continuing doing so. Given the strong opposition, legal challenges to the rule are likely.

However, other groups emphasize that the new rule will allow businesses to contract with third parties for the supply of temporary employees with confidence that they will not be responsible for the other employer’s employment violations. This should provide an overall boost to the economy.

Sean P. Redmond, Executive Director of Labor Policy for the U.S. Chamber of Commerce, commented, “the new rule restoring common sense is cause for celebration, to be sure.”

Why Rulemaking?

As in Browning-Ferris and Hy-Brand, the NLRB has historically interpreted the National Labor Relations Act by adjudicating actual controversies between parties. The NLRB took the rulemaking approach here in an attempt to lock the joint employer rule in place and make it less vulnerable to future changes without warning.

The proposed joint employer rule appeared in the Federal Register on September 13, 2018. The NLRB received and considered approximately 29,000 comments from employee rights advocates and businesses.

What This Means for Companies with “Shared” Workforces

The new rule should come as a big relief for franchisors. But it still leaves a gray area in other contexts.

If your company participates in potential joint employer arrangements either through the supply of labor or as the recipient of the services of another employer’s employees, you should review the relevant contractual terms in light of the NLRB’s new standard. You should also reevaluate the policies and procedures governing your company’s relationship with other employer’s employees. Give particular attention to the “essential terms and conditions of employment”: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

Generally, placement and temporary employment agencies should make the employment decisions in these areas. This will help to reduce joint employer claims against both parties, allocating the legal responsibility as usually intended—with the agency taking the role of employer and easing its client’s concerns of joint employer liability.

While this rule is good news for employers, it is critical to watch out for future developments. Beyond the anticipated legal attacks to the rule, a change in NLRB composition could again result in a policy reversal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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