Congress Introduces Bill to Reverse Joint-Employer Decision

By Allen Smith Oct 6, 2015
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Being a couple isn’t all that it’s cracked up to be when it’s a couple of businesses that are “joint employers.”

Joint employers have a number of disadvantages, including greater liability and more complicated negotiations with unions. Businesses are hoping to avoid these downsides by persuading Congress and the president to pass legislation (H.R. 3459 and S. 2015) that would narrow the National Labor Relations Board’s (NLRB’s) recent expanded definition of what constitutes a joint employer.

Decision’s Harmful Impact

A business and one of its contractors might be considered joint employers. Now, under the board’s new definition, franchisors and franchisees might be joint employers as well.

In its August decision (Browning-Ferris Industries (BFI) of California, 362 NLRB No. 186), the board determined it no longer would require direct and immediate control over employment to show a joint-employer relationship, testified Charles Cohen, senior counsel with Morgan Lewis in Washington, D.C., before the House of Representatives Subcommittee on Health, Employment, Labor and Pensions on Sept. 29, 2015.

Instead, a joint-employer relationship could be found based on the mere potential to control the terms and conditions of employment, even if the control is indirect or unexercised, Cohen explained.

Rep. John Kline, R-Minn., and chairman of the House Education and the Workforce Committee, and Sen. Lamar Alexander, R-Tenn., have introduced the Protecting Local Business Opportunity Act to restore the old definition of joint employers. The bill states, “Two or more employers may be considered joint employers for purposes of this act only if each shares and exercises control over essential terms and conditions of employment and such control over these matters is actual, direct and immediate.”

In his written testimony to the subcommittee, Cohen, a former member of the NLRB, noted that the Browning-Ferris standard will harm businesses by:

  • Expanding unfair practices liability. Companies will be exposed to potentially automatic liability for unfair labor practices committed by their contractors and suppliers.
  • Making collective bargaining negotiations unworkable. “Now that two or more employers may be swept into union negotiations, either on all mandatory subjects of bargaining or perhaps only some, the board has provided no guidance for how such bargaining is to work in practice,” Cohen said.
  • Creating impediments to the cancellation of commercial contracts. Ordinarily, businesses negotiate contracts for a defined length of time, subject to potential cancellation or renewal, he noted. “That widely held practice is now subject to considerable uncertainty and confusion.”
  • Undermining limits on secondary boycott and picketing. “Once deemed an ‘employer,’ a formerly neutral company can be subject to union pressures at all of that company’s operations throughout the United States,” Cohen testified.
  • Decreasing responsible contractor programs. The new standard exposes companies to joint-employer liability if they require their contractors and suppliers to meet certain safety standards, or otherwise if they promote special programs on hiring. Companies will be discouraged from adopting supplier codes of conduct or promoting special hiring programs for certain groups, such as veterans.

Franchisor Model Disrupted

Those special programs have a real meaning for Ed Braddy, a franchisee who owns a Burger King restaurant in Baltimore. He noted that his 27 employees are predominantly single mothers and men with criminal convictions.

Braddy said that under the new decision, franchisors may protect themselves in one of three ways:

  • Repurchasing the franchisee upon expiration of the franchisee’s agreement so the corporation can fully consolidate and control all labor practices.
  • Selecting larger operators to buy out other franchisees. “For a one-store operator like me, my contract will not be renewed. I will either close my restaurant or be forced to sell it,” Braddy predicted.
  • Keeping the current franchise model in place with extreme oversight policies in local franchises across the country. “Franchisors will implement detailed franchisee and employee policies and I will be no more than a glorified manager in my own restaurant,” Braddy said. He urged Congress to restore the former definition of joint employer, which required actual, direct and immediate control over employment.

Bill Opponents

However, Michael Harper, a law professor at Boston University School of Law, opposed the proposed legislation, saying the significance of the Browning-Ferris decision has been “greatly exaggerated.”

Harper added that if enacted, the Protecting Local Business Opportunity Act “would send a clear message to the courts, as well as to future boards, that Congress wants to permit businesses like BFI to continue to enjoy the loophole that BFI attempted to use in this case.” That would mean businesses, without any fear of a bargaining obligation, could control work pace, overtime, break time and maximum wages, as long as the control of the workplace was exerted through subordinate employers.

“Then, if the employees somehow organized a union that asked the subordinate employer to bargain, the BFI-type employer simply could terminate its contract with the subordinate intermediary employer and find another nonunion subordinate to use as its intermediary means of control.”

Anne Marie Lofaso, a law professor at West Virginia University College of Law, argued that Browning-Ferris was not a radical departure from long-standing law. Instead, she said it returns the law to the common understanding of what constituted a joint employer prior to 1984, when the NLRB held that a joint-employer status exists only when control is exercised, not when there is merely potential control. She added, “There simply is no evidence that the franchise business model did not flourish prior to 1984.”

Period of Specialization

The Browning-Ferris decision clearly is controversial.

During the hearing, Kline noted that Browning-Ferris was a 3-2 decision and that the dissenters in that case argued that “the majority abandons a long-standing test that provided certainty and predictability and replaces it with an ambiguous standard that will impose unprecedented bargaining obligations on multiple entities.” Kline asked Cohen whether he agreed with the decision’s dissenters.

Cohen said he did. “I believe that the dissenters have done a thorough and very good job in pointing out the difficulties that the Browning-Ferris decision imposes.”

Cohen did not agree with Lofaso’s interpretation of pre-1984 law. He said that in those cases there was almost always actual control before there was a finding of joint-employer status.

“What has changed in this period of time is that we are in a period of specialization,” Cohen said. “This has dramatically changed the workplace, and it makes it more difficult, I understand, for some unions to try to organize some employees when there are so many specialized providers.”

But, he added, the NLRB had no right to change the definition of joint employer merely because of that new reality.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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