House Passes Joint Employer Legislation

Standard may seem esoteric, but it should matter to HR

Allen Smith, J.D. By Allen Smith, J.D. November 8, 2017
House Passes Joint Employer Legislation

​The U.S. House of Representatives passed a bill by a vote of 242-181 on Nov. 7 that would require a business to exercise direct control of another entity to be considered a joint employer. If also passed by the Senate and signed into law by the president, the Save Local Business Act would legislatively overturn the National Labor Relations Board's (NLRB's) 2015 Browning-Ferris Industries decision, which ruled that entities may be joint employers even if one exercises only indirect or potential control over the other.

A lawsuit seeking to overturn the decision currently is before the U.S. Circuit Court of Appeals for the D.C. Circuit, which is expected to soon issue a decision that may vacate the ruling and send it back to the NLRB to reconsider, according to Mark Kisicki, an attorney with Ogletree Deakins in Phoenix. Meanwhile, the bill seeks to return the joint-employer test to a direct control standard.

"I am especially pleased the bill passed with votes from both sides of the aisle," said Rep. Bradley Byrne, R-Ala., chairman of the House Subcommittee on Workforce Protections.

Relevance of the Standard to HR

"Joint employer is a critical issue for HR professionals, even if it seems a little esoteric," said Phillip Wilson, president and general counsel with the Labor Relations Institute in Broken Arrow, Okla. "The broader [that] joint employer is defined, the less certainty you have over legal exposure and risk related to employment law issues. So, it is good that Congress is trying to limit the scope of joint employer to situations where the contracting employer is exercising actual control over employees."

Still not convinced the joint employer standard should matter to HR? "Ask yourself this question," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of its government relations branch, the Workplace Policy Institute. "Does my company ever use temporary labor? Do we contract our services for cafeteria? Security? Janitorial? Landscaping? Fleet drivers? Who else?" If the company does use temporary employees or have contracts with third parties for services, there are potential joint-employer issues, he noted.

"Changing the joint-employer standard disadvantaged employers in significant ways," said Mike Aitken, vice president of government affairs with the Society for Human Resource Management, in a July 31 letter in support of the bill. "Under the NLRB standard, multiple employers must jointly negotiate working conditions and are now held liable under the National Labor Relations Act (NLRA) for labor violations." He added, "If this legislation is not enacted, employers that rely on either independent contractors [or] third-party service providers or who are franchisors will continue to be forced to extend greater oversight of these employee/employer relationships, limiting the flexibility and autonomy of employers and individuals."

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

The legislation would provide that a company is a joint employer with a subcontractor if it "directly, actually and immediately exercises significant control over essential terms and conditions of employment, such as hiring employees; discharging employees; determining individual employee rates of pay and benefits; day-to-day supervision of employees; assigning individual work schedules, positions and tasks; or administering employee discipline."

Democratic Opposition

Many Democrats oppose the legislation, whose future in the Senate is uncertain.

Rep. Mark Takano, D-Calif., said at a Sept. 13 hearing before the House Committee on Education and the Workforce that employers increasingly are hiring employees from staffing agencies "and then evading responsibility for upholding the rights of those workers, even though they profit from their work."

He said, "Joint employment standards have ensured workers can hold employers accountable for violating wage and hour laws or refusing to collectively bargain. This bill represents a significant and dangerous break from that precedent."

'Unworkable' Standard

But Kisicki said that by requiring indirect employers to collectively bargain, Browning-Ferris Industries may encourage joint employers under its definition to negotiate at cross purposes. Their interests may be aligned in some ways but not in others, he noted. For example, a company might want more generous health insurance provisions for its employees than a temporary agency is willing to offer its workers. A collective bargaining agreement actually may be more difficult to be reached with both parties at the table since one of the entities could keep a contract from being agreed upon if it disagrees with the terms, he noted.

Kisicki called the board's standard "unworkable," saying that all companies have some control of vendors, suppliers and subcontractors.

The Browning-Ferris Industries test has meant that many new entities in a variety of industries could be subjected to union-organizing campaigns and potential labor disputes where they previously were not, particularly businesses that have relied heavily on staffing agencies or otherwise contracted or leased labor from third parties, said Molly Kaban, an attorney with Hanson Bridgett in San Francisco.

She added that unions also can use Browning-Ferris Industries to circumvent the NLRA's prohibition on secondary boycotts and to pressure users of contracted labor through strikes and picketing, even when the chief dispute is with the labor supplier.

In the context of the Fair Labor Standards Act (FLSA), a broad joint-employer test means that businesses can more easily be found liable for the wage and hour practices of other businesses, particularly subcontractors and staffing agencies, leading to liability for minimum wage and overtime for individuals they do not directly employ, she noted.

If the definition of joint employer is defined more narrowly under both the NLRA and the FLSA, as would happen under the bill if enacted, it would be less likely that employers would be responsible for the actions of other entities with which they have business relationships, Kaban said.


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