NLRB Chairman Defends Proposal to Define ‘Joint Employer’

 

Allen Smith, J.D. By Allen Smith, J.D. February 4, 2019
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​National Labor Relations Board (NLRB) Chairman John Ring has rejected calls from Capitol Hill Democrats to withdraw the board's proposed rule to define "joint employer." The decision in a recent court case stands in opposition to the rule, and the court case should be followed, not the proposal, Democrats said.

The definition determines whether franchisors and contractors are liable for the actions of franchisees and subcontractors, and whom employees may picket.

The proposed rule says that to be a joint employer, a franchisor or contractor must directly control another entity, such as by recommending that a franchisee or subcontractor fire employees.

Under the current standard, indirect control—reserving the right to suggest that another entity fire someone but not exercising that right—would be enough to show a franchisor or contractor is a joint employer.

Democrats and unions believe the proposed rule is wrong, saying it contradicts the National Labor Relations Act (NLRA). That law states, "The term 'employer' includes any person acting as an agent of an employer, directly or indirectly."

On Jan. 8, Reps. Bobby Scott, D-Va., and Rosa DeLauro, D-Conn., wrote to Ring that a decision handed down by the U.S. Circuit Court of Appeals for the District of Columbia in December 2018 "affirmed Browning-Ferris's articulation of the joint-employer test." They said that under this test "an entity may be a joint employer even if it reserves control in its contract with an intermediary or if it exercises control indirectly through an intermediary."

Scott and DeLauro said the proposed rule seeks to overturn Browning-Ferris by holding that an entity may be a joint employer only if it exercises substantial direct and immediate control over employment conditions. In its proposed rule, the NLRB gave examples of what constitutes direct control.

[SHRM members-only toolkit: Complying with U.S. Labor Relations Laws in Nonunion Settings]

The D.C. Circuit's decision provides unambiguous answers to who is a joint employer, Scott and DeLauro wrote, and withdrawing the proposed rule "would end the uncertainty created by repeated attempts to overturn Browning-Ferris."

In a Jan. 17 letter, Ring noted that the D.C. Circuit held that an employer's indirect control of and contractually reserved right to control the terms and conditions of employment of another employer's workers can be relevant to determining joint-employer status. But he added that the D.C. Circuit "expressly disapproved of the board's application of that indirect-control test" in Browning-Ferris because "the board provided no blueprint for what counts as indirect control."

The lack of clarity is "precisely why the NLRB initiated rulemaking on the joint-employer standard," Ring wrote. He noted that since the court said its decision would inform the board's joint-employer rulemaking, it cannot be interpreted as foreclosing the proposed rule.

"Withdrawing the [proposed rule] at this time certainly would be unfair to the thousands of individuals and groups that have expressed such a strong desire to be heard on this important topic," Ring noted.

Significance of Joint-Employer Definition

Which entities can be considered a joint employer is significant in understanding who is potentially liable in lawsuits against franchisors and contractors, in addition to knowing who needs to be at the table for collective bargaining.

Joint employment also affects where employees can picket. They cannot lawfully picket a separate entity that has a relationship with their employer unless that entity is a joint employer.

Joint employers also are prohibited from making changes, such as ending relationships with subcontractors, without first engaging in bargaining.

Single, Clear Standard Needed

A final rule would provide businesses with the certainty they need to make business investments, which ultimately is good for workers, said Phillip Wilson, president and general counsel of the Labor Relations Institute in Broken Arrow, Okla.

Under the direct-control standard, franchisees in general are not joint employers with franchisors, he added.

They arguably aren't under an indirect-control standard either, according to Mark Kisicki, an attorney with Ogletree Deakins in Phoenix. "But without the scaffolding to explain what indirect control means, employers can't form a reasonable conclusion that's in fact the case," he said.

In its Jan. 28 comments on the proposed rule, the Society for Human Resource Management (SHRM) said that the proposed rule would create sound policy by adopting a single, clear standard to resolve the different standards each circuit court uses to define "joint employer."

In the NLRB's 2015 Browning-Ferris decision, the board held that an organization's indirect or contractual control of another entity was enough to show that the entity is a joint employer. The decision "was completely misguided" and needs to be replaced "with a consistent standard to be applied across every jurisdiction and foster predictability in the workplace," SHRM commented.

Businesses' Reactions to Browning-Ferris

Franchisors don't know what to do. Under the Browning-Ferris standard, some franchisors have felt the need to become much more involved in franchisees' operations because they might be jointly liable, noted Reps. Virginia Foxx, R-N.C., and Tim Walberg, R-Mich., in Dec. 21, 2018, comments.

By contrast, other franchisors and contractors have become hands-off "for fear of triggering the ambiguous joint-employer standard," they added.

They cited September 2017 congressional testimony from a franchisee that a franchisor stopped providing an employee handbook after Browning-Ferris, which meant the franchisee had to pay a lawyer to provide and update a handbook.

Foxx and Walberg called for the proposed rule to be finalized with a substantial direct and immediate control standard.

Proposed Rule Criticized

But is the rule up-to-date with the gig economy? The National Employment Law Project (NELP) said the proposal is so limiting that it will exclude from the bargaining table parties controlling essential employment conditions.

NELP asserted that in many fast-growing industries, the use of temporary and staffing agencies and other types of subcontractors "has become a deeply entrenched practice that can permit employers to avoid their legal duties to workers, degrade labor conditions and limit workers' ability to bargain," contrary to the intention of the NLRA.

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