House Committee Passes Bill to Redefine ‘Joint Employer’

Proponents describe legislation as a business-saver, opponents say it enables wage theft

By Allen Smith, J.D. Oct 6, 2017
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​The battle over how to define which businesses are "joint employers" continues—a fight that could result in lost jobs if the current definition is left unchanged, according to House Republicans. But House Democrats caution that if the definition is changed, unscrupulous employers will find it easier to get away with wage theft.

The House Committee on Education and the Workforce on Oct. 4 passed legislation by a vote of 23 to 17 along party lines that would redefine the term joint employer under the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA).

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

'Disruptive' Decision

The bill, called the Save Local Business Act, would clarify that two or more employers must have direct control over employees to be considered joint employers.

Rep. Bradley Byrne, R-Ala., introduced the legislation in response to the National Labor Relations Board's (NLRB's) 2015 decision in Browning-Ferris Industries that two or more entities may be joint employers even if one exercises only indirect or potential control.

More than two dozen witnesses have testified at committee hearings about the harm the board's decision has caused among small businesses, said Committee Chairwoman Rep. Virginia Foxx, R-N.C., during the committee's discussion of the bill. The committee has "heard firsthand how the board's decision disrupted daily operations of businesses." Franchisees' independence has been jeopardized and the lines of responsibility for workplace protections have blurred with the new boss being at some distant company, she added.

Wage Theft Concerns

However, Ranking Member Rep. Bobby Scott, D-Va., said that the bill would "eviscerate worker protections by eliminating long-standing avenues to recover stolen wages." If a business exercises its authority indirectly through a subcontractor, the entity is immune from liability under the bill, he cautioned.

In addition, under the NLRA, the union wouldn't be able to negotiate with the entities that actually control the terms and conditions of employment, Scott said.

"The bill rewrites the NLRA and FLSA by adding a new narrow definition of joint employer," he said. An entity may be a joint employer under the bill only if it directly exercises control over certain terms of employment, including hiring; firing; determining rates of pay and benefits; day-to-day supervision; assigning work schedules, positions and tasks; and disciplining. It's not clear whether an employer must exercise direct control over all of these factors, a majority, or as few as one or two, Scott said.

He also criticized the characterization of Browning-Ferris Industries as harming franchisees, saying that the bill would instead shield franchisors at the expense of franchisees.

Board May Act Even if Congress Does Not

The bill now moves to the full House of Representatives.

If Congress does not act on the bill, "recent appointments to the NLRB under the Trump administration ensure that the indirect test will be revisited," predicted Marick Masters, a professor at the Mike Ilitch School of Business at Wayne State University in Detroit.

Indirect instead of direct control is one of the issues which is causing confusion, said Michael Lotito, an attorney with Littler in San Francisco and co-chair of its government affairs branch, the Workplace Policy Institute. In Browning-Ferris Industries, the NLRB adopted not only an "indirect test" but also a "potential control" test. "No one knows for sure what those terms mean," he said.

"If allowed to stand, this 'indirect control' standard essentially destroys the franchise model," said Phil Wilson, president and general counsel with the Labor Relations Institute in Broken Arrow, Okla.

"The indirect control standard has enormous implications in all areas of employment law," Wilson noted. "Very small employers may suddenly find themselves covered by laws that Congress specifically decided should not cover small companies. This perverse result will kill many small businesses, which is why Congress exempted them in the first place."

Employers for now should look at the control they have over the employment of other entities to ascertain whether they might be considered joint employers, recommended Ronald Taylor, an attorney with Venable in Baltimore.

Companies using franchise models or staffing agencies should be aware that they may be liable not only for their own actions but also those of any other entity with which they are determined to be a joint employer, cautioned David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis.

 

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