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Indirect control test had five major problems, board states
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[Editor's note: This decision subsequently
The National Labor Relations Board (NLRB) jettisoned the Obama administration's much-criticized broad definition of "joint employer" on Dec. 14, a move that's been widely expected since President Trump appointed two additional Republicans to the board earlier this year. As a result, indirect control by one organization of another is no longer enough to be considered a joint employer. There must instead be direct control, making it tougher for contractors and workers at franchised businesses to form unions.
"This is a tremendously significant decision by the NLRB that benefits not merely employers, but our economy generally," said Mark Kisicki, an attorney with Ogletree Deakins in Phoenix. "It returns the board's interpretation of the act that provides meaningful standards that are reasonable and clear due to decades of board jurisprudence. This is a crucial step by the board in helping companies to be able to assess risks when structuring their business relationships."
The overturned definition of joint employer was developed in the board's Browning-Ferris Industries ruling in 2015, which had made it easier for companies to be held liable for violations committed by their contractors or franchisees. Now companies have a little more protection.
Hy-Brand Industrial Contractors and Brandt Construction Co. decision, the board stated that the indirect control test outlined in
Browning-Ferris Industries "is a distortion of common law as interpreted by the board and the courts." Moreover, it said that "it is ill-advised as a matter of policy, and its application would prevent the board from discharging one of its primary responsibilities under the act, which is to foster stability in labor-management relations. Accordingly, we overrule
Browning-Ferris and return to the principles governing joint-employer status that existed prior to that decision."
Applying the direct control test, which existed prior to
Browning-Ferris, instead of the indirect control test, the board found that Hy-Brand Industrial Contractors and Brandt Construction Co. were joint employers.
Hy-Brand, the board found that substantial evidence supported a finding that the two entities exercised joint control over essential employment terms involving Brandt and Hy-Brand employees; that the control was direct and immediate; and that it was not limited and routine. For example, Terence Brandt served as the corporate secretary for both companies, was directly involved in the decisions at both companies to discharge workers and identified himself as an official of Brandt when he signed letters informing two Hy-Brand strikers that they had been fired. The companies also had common employment policies.
Real-World Problems with Indirect Control Test
The vague indirect control standard of
Browning-Ferris "created a lot of uncertainty about things like franchisor-franchisee relationships and contractor relationships," said Phillip Wilson, president and general counsel with the Labor Relations Institute in Broken Arrow, Okla.
The Obama administration was looking for ways to unravel "gig economy" relationships and the so-called fractured employment relationship, he said. "But they took a sledgehammer to an issue that requires much more finesse," he stated.
There's no doubt that contractor relationships and the freelance economy have dramatically altered the workplace, he added. "But concentrating on things like benefits portability—and health care and savings more generally—is much more productive than trying to just make everyone an employee of the biggest entity you can find."
Browning-Ferris, the board expressly overruled prior decisions that required that control be exercised "directly, immediately and not in a limited and routine manner," noted Molly Kaban, an attorney with Hanson Bridgett in San Francisco. Under the
Browning-Ferris definition, both direct and indirect control as well as the right to control essential terms and conditions, even if not exercised, could lead to a finding of joint-employer status.
"The joint-employer test has broad significance," Kaban said. Many new entities in a variety of industries could have been subjected to union-organizing campaigns and potential labor disputes where they previously were not, particularly businesses that relied heavily on staffing agencies or otherwise contracted or leased labor from third parties, she noted.
Unions also could have used
Browning-Ferris to circumvent the National Labor Relations Act's (NLRA's) prohibition on secondary boycotts and to pressure users of contracted labor through strikes and picketing, even when their chief dispute was with the labor supplier, she added.
[SHRM members-only HR Q&A: What is the function of the National Labor Relations Act (NLRA)?]
Kisicki said the Obama board compounded that problem by failing to provide guidance on how it would interpret the "nebulous standard." As a result, businesses were forced to either exercise extreme caution in their business arrangements or take uncertain risks—"both of which significantly impaired economic growth," he said.
The Browning-Ferris case is before the U.S. Court of Appeals for the D.C. Circuit. That court might now send the case back to the board, noted Michael Lotito, an attorney with Littler in San Francisco and co-chair of its government affairs branch, the Workplace Policy Institute. Lotito said
Browning-Ferris made it difficult for staffing agencies and client companies to establish clear relationships and for companies that outsource landscaping, security, housekeeping, janitorial and food services to know exactly what kind of joint liability might exist.
Five Legal Faults
In addition to these practical faults with the indirect test, the NLRB outlined in this decision,
Hy-Brand, five legal ones:
Employers still may be found to be joint employers under the direct control test, as the board found in this case that Hy-Brand Industrial Contractors and Brandt Construction Co. were.
Dissenting Board Members Object to Rush to Reverse
Dissenting board members Mark Gaston Pearce and Lauren McFerran said that the board reversed
Browning-Ferris even though:
"To say that the majority is reaching out—and rushing—to reverse [Browning-Ferris] is an understatement," they stated.
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