House Bill Would Reset Joint Employer Standard

House committee hears testimony on proposed standard

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP September 15, 2017
House Bill Would Reset Joint Employer Standard

The Save Local Business Act (H.R. 3441) would put an end to the National Labor Relations Board's (NLRB's) revised joint employer standard and clarify what it means to be an employer, according to Rep. Bradley Byrne, R-Ala.

"It used to be very clear who your employer is, but that's no longer the case since the National Labor Relations Board stepped in," Byrne said at a House Education and the Workforce Committee hearing on Sept. 13. Byrne is chairman of the Subcommittee on Workforce Protections.

"Now, we all agree there are times when two or more employers should be deemed joint employers," he noted. The proposed legislation would restore the traditional standard that was in place prior to the NLRB's 2015 Browning-Ferris decision, which broadly defined "joint employer" to include businesses with indirect or potential control over other entities. 

Byrne said that the NLRB's decision and subsequent actions by President Barack Obama's administration and "activist judges" created a lot of confusion about the employee-employer relationship.

Prior to Browning-Ferris, two employers had to have "actual, direct and immediate control" over the central terms and conditions of employment to be considered joint employers. "That standard made sense," Byrne said. He introduced H.R. 3441 to restore that definition.

[SHRM members-only HR Q&A: What is the function of the National Labor Relations Act (NLRA)?]

However, Rep. Mark Takano, D-Calif., said the bill could more accurately be described as "a gift to large corporations that will further rig the economy against workers." Takano is the ranking member of the Subcommittee on Workforce Protections.

He said the bill would allow businesses to rent employees from staffing agencies and evade responsibility for upholding the rights of those employees despite profiting from their work.

The bill would enable corporations to keep wages low by subcontracting out the work, said Rep. Donald Norcross, D-N.J. "They are subcontracting their conscience to put profits first."

He added that, under H.R. 3441, a company could outsource its control over employees by delegating one essential term of employment to a subcontractor—such as employee scheduling—and the company would be relieved from any liability for unlawful employment actions.

Business Owners Testify

Granger MacDonald is the CEO of Kerrville, Texas-based MacDonald Companies, which specializes in building and managing affordable multifamily housing. His company directly employs 131 workers and contracts with about 80 other companies that provide services such as drywall and heating, ventilation and air conditioning work.

"The construction industry is made up of a system of building contractors and subcontractors," he said.

MacDonald said most builders don't have enough work to hire someone full time to do jobs involving tilework or drywall, and that's why builders contract with other small companies.

"This is why I am very concerned about the ongoing ambiguity over what constitutes a joint employer," he said, because a builder can now be considered a joint employer if he has indirect control or the potential ability to exercise control over subcontractors. "This threatens to upend the foundation of the entire industry," he testified.

Tamra Kennedy owns nine Taco John's franchise locations in Iowa and Minnesota. "After two years of operating under the expanded joint employer standard, the impact on my business is clear," she testified.

There are more liability risks for her franchisor because of the "indirect control" language in the NLRB's joint employer standard, she said. Taco John's corporate offices used to provide employment products to franchisees, such as standard job descriptions and performance review forms, as well as recruiting tools like banners and fliers. But due to the expanded joint-employer standard and concern about the liability it may face by offering management products, her franchisor no longer provides such tools.

Kennedy said she had to hire an outside attorney to write an employee handbook—which cost her $9,000.

Legal Issues

Zachary Fasman, a management-side attorney with Proskauer Rose in New York City, said the accepted joint employer test should be whether an entity has direct and immediate control over employment issues rather than over limited and routine issues.

"This is not a new standard," Fasman said. "This is the traditional standard that was used by the NLRB and courts in hundreds of cases for more than 30 years." He said this bill would simply restore the standard to what it was before the NLRB's decision in Browning-Ferris.

However, Michael Rubin, an employee-side attorney with Altshuler Berzon in San Francisco, said the bill would have disastrous consequences for the low-wage workers he represents.

"The bill purports to redefine the term joint employer under the [NLRA] and the [Fair Labor Standards Act], but its practical effect will be to completely eliminate joint-employer responsibility under those statutes," he testified. "The bill so dramatically changes the standard that no company could meet the definition of joint employer once it contracts out any direct control over its workers' employment."


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