What Is the State of Joint Employment?

by BakerHostetler
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Each January, the President gives a State of the Union Address to a joint session of Congress. Throughout the speech, as the President touts his agenda and vision, half the audience cheers wildly, while the other half makes frowny faces. All the while, members of the Supreme Court sit stone-faced, internally cheering or wincing but trying not show it.

The State of Joint Employment is sort of like that annual speech. Policy goals change with each administration. Depending on which party is in office, some people cheer and others frown.

Ladies and Gentleman, the State of Joint Employment is … confusing.

Different laws use different tests. More confusing, sometimes the same law uses different tests in different states. These rules are likely to change again soon. The National Labor Relations Board (NLRB) has proposed a new test, and the Secretary of Labor has suggested that the Department of Labor (DOL) will do the same. Like at a real State of the Union Address, the Supreme Court justices sit back quietly, watching the madness unfold.

Here’s where things stand as of October 2018.

National Labor Relations Act (NLRA). If a business is a joint employer under federal labor law, it may be obligated to bargain collectively with another company’s unionized employees, it may be forced to recognize units that contain both its direct employees and another company’s workers, it may be drawn into collective bargaining or unfair labor practice disputes with another company’s employees, and it may be held jointly liable for another company’s unfair labor practices.

The test for joint employment under federal labor law keeps flipping back and forth, like the little yellow ball in a long tennis rally.

The current test, articulated by the NLRB in the 2015 Browning-Ferris case, allows for a finding of joint employment when a secondary business has the mere right to exercise control, whether it does so or not, even if that control is indirect and does not relate to essential terms or conditions of employment. The secondary employer might have no control over hiring, wages, scheduling or discipline, but can still be a joint employer.

In December 2017, the Board tried to reverse that test in the Hy-Brand case, establishing a new “direct control test.” But amid allegations of conflicts of interest, the Board reversed itself and vacated the Hy-Brand decision in February 2018, which had the effect of re-establishing the Browning-Ferris “indirect control test” as the prevailing standard.

Last month, the Board released a Notice of Proposed Rulemaking. Rather than waiting for a new case as another opportunity to reconsider the Browning-Ferris test, the Board is now proposing a new administrative regulation that would impose a new “direct control test.”

Under the proposed regulation, an employer may be considered a joint employer of a separate employer’s employees only if “the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.”

Let’s break that down into pieces:

  • The proposed joint employer must share or codetermine the workers’ terms and conditions of employment.
  • These terms have to be essential terms of employment, such as hiring, firing, discipline, supervision and direction.
  • It is not enough to have the right to control these terms; the proposed joint employer must actually exercise this control.
  • The control must be direct, substantial and immediate.
  • It is not sufficient to exert control that is “limited and routine.”

“Limited and routine” control means directing another business’s employees as to what work to perform, or where and when to perform it. Under the new rule, that would not be enough to show joint employment. Control that is not “limited and routine” would include providing direction on how to do the work − in other words, supervision.

The proposed regulation is now in a 60-day public comment period, with initial comments due Nov. 13, and reply comments due Nov. 20. Comments can be submitted electronically through the Federal eRulemaking Portal. After that period expires, the Board will consider the public comments, but everyone already knows what the gist of those comments will be. Businesses will love the rule. Unions will hate it. The Board may then adopt the new proposed regulation, or modify it, or scrap it. Odds favor adoption of the new regulation by early 2019.

Fair Labor Standards Act (FLSA). Joint employment under the FLSA means that a secondary company is jointly liable for FLSA violations by a set of employees’ direct employer, when that direct employer fails to properly pay its employees the required minimum wage and overtime. A secondary company that is a joint employer is liable for these errors, even if it had no control over the direct employer’s improper pay practices.

The test for joint employment under the FLSA varies depending on where you live. That’s because the Fourth Circuit Court of Appeals, which covers Maryland, North Carolina, South Carolina, Virginia and West Virginia, applies a very different test than does the rest of the country.

In 45 states, the test for joint employment starts with answering the question of whether a worker is an employee or an independent contractor of the primary business that is paying that worker. If the person is an employee of the primary business, the court would then look at whether the employee is also jointly employed by the secondary business. That second step of the test looks at whether the secondary business (the one benefiting from the worker’s services, such as in a staffing agency relationship) has the power to hire and fire, supervise work, control schedules, control pay rate, and maintain personnel records of the employees of the primary employer.

The Fourth Circuit, however, takes a different view. In these five states, the courts must start by looking at whether or not the two alleged joint employers are businesses that have some association with each other. The test is whether they are, or are not, “completely disassociated” from each other. That’s a pretty low bar. It seems hard to argue that two companies doing business with each other, such as through a staffing or subcontracting arrangement, are “completely disassociated.” But that’s the standard being applied in Maryland, North Carolina, South Carolina, Virginia and West Virginia. Shortly after the Fourth Circuit established this test, the Supreme Court was asked to decide which of these tests is correct − the Fourth Circuit version or the Everywhere Else version − but the Supreme Court denied certiorari, leaving the circuit split in place.

The Fourth Circuit’s “completely disassociated” test stems from its interpretation of a DOL regulation. No other circuit interprets the DOL regulation in this way. So as things currently stand, the likelihood of being considered a joint employer under the FLSA is substantially greater in these Mid-Atlantic states than elsewhere in the country, even if the facts of the relationship are the same everywhere.

That too may soon change. The Secretary of Labor has said that the DOL is exploring the same rulemaking procedure being used by the NLRB to redefine joint employment under the FLSA. We expect that the new regulation would require proof that a secondary business exercised direct control over essential terms and conditions of employment, similar to the NLRB’s proposed new regulation. It would not be a surprise if the DOL proposed the same test that the NLRB ultimately adopts after the public comment period expires.

Look for a proposed regulation from the DOL later this year or in early 2019.

Federal Anti-Discrimination Law. Joint employment under the federal anti-discrimination laws means being liable, as an employer, for discrimination prohibited under Title VII, the Age Discrimination in Employment Act (ADEA), or the Americans with Disabilities Act (ADA), when the victim of the alleged discrimination is another company’s direct employee. This scenario could arise, for example, in a staffing or subcontracting relationship in which a direct employer’s workers are on-site and subject to supervision by the secondary company’s managers.

The test generally applied is a Right to Control Test. Although the factors to be considered in a Right to Control Test are sometimes articulated differently by different courts, the test is commonly distilled into seven factors:

  1. Does the alleged joint employer have the right to control how the work is performed?
  2. Does the alleged joint employer provide the tools?
  3. Is the work being performed at the work site of the alleged joint employer?
  4. Does the alleged joint employer provide employee benefits?
  5. Does the alleged joint employer have the right to assign additional work?
  6. Does the alleged joint employer have discretion over when and how long the workers work?
  7. Is the work being performed a part of the alleged joint employer’s regular business?

Fifty States’ Employment Laws. After Prometheus stole fire from heaven, Zeus took vengeance by creating a woman named Pandora, whom he molded to look like the beautiful Aphrodite. Zeus sent her to Earth to become the wife of Prometheus’ brother, Epimetheus. Prometheus warned his brother not to accept gifts from Zeus, who was known to have a few tricks up his sleeve, but Epimetheus was smitten by her beauty and married her. As a wedding present, Zeus gave Pandora a jar but warned her never to open it.

Pandora, filled with curiosity, opened the box and unleashed all sorts of evils into the world, including greed, envy, hatred, pain, poverty, war and a myriad of state law tests for determining joint employment.

As prophesied by the Ancient Greeks, each state can now set up whatever test it wants for determining who is a joint employer under its own state laws. Some states use Right to Control Tests. Some states use Economic Realities Tests. Some states make up their own tests to determine joint employment. As they say on TV, check your local listings.

Conclusion. The State of Joint Employment may be changing – slowly – but the risks to employers are real. Businesses should be aware that proactive steps can be taken to reduce employment risks, both by carefully sculpting the facts of the relationships and by drafting comprehensive contracts that precisely define the parties’ respective obligations.

Plan ahead. Hopefully, businesses can look forward to a 2019 filled with more cheers and fewer frowny faces. Maybe the Supreme Court will even weigh in and bring some much-needed clarity to this complex area of the law.

To learn more about joint employment, download Five Things You Need to Know About Joint Employment.

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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