NLRB Reins in When Companies Are Joint Employers

Allen Smith, J.D. By Allen Smith, J.D. September 13, 2018
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​A National Labor Relations Board (NLRB) proposed rule will clarify who has to be at the bargaining table during union negotiations, which would include a "joint employer"—a company that directly controls another entity's workers. A joint employer, for example, might be a contractor or franchisor.

The proposed rule provides numerous examples of what is meant by "direct control."

The Society for Human Resource Management (SHRM) welcomed the Sept. 14 proposed rule and the board's invitation for comments on the joint-employer standard. The NLRB's 2015 Browning-Ferris Industries decision was due for re-examination to provide clarity as to the joint-employer status, noted Mike Aitken, SHRM's senior vice president of government affairs. Employers that reserved the right to control other companies, but that didn't exercise that right, could be joint employers under Browning-Ferris Industries and get dragged into collective bargaining disputes.

"The board is showing leadership to provide certainty on an issue that had been settled law for decades but was upset in Browning-Ferris Industries," said Michael Lotito, an attorney with Littler in San Francisco.

The broader the definition of joint employer, the more potential liability there is for more companies, added Steven Suflas, an attorney with Ballard Spahr in Denver.

The definition affects contractors, subcontractors, franchisors, franchisees and staffing firms, observed David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis.

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

What 'Direct Control' Means

The proposed rule provided examples of what does and does not constitute direct control, including:

  • Under a contract between a company and contractor, the company reserves the right to discipline the contractor's employees for misconduct or poor performance. The contract also permits either party to terminate the contract at any time without cause. The company has never directly disciplined the contractor's employees. However, the company has frequently informed the contractor about employees who have engaged in misconduct or performed poorly while suggesting that a prudent employer would discipline those employees and remarking upon its rights under the contract. The record indicates that, had it not been for the company's input, the contractor would not have disciplined these employees, or would have imposed less discipline. The company has exercised direct and immediate control over the contractor's employees' essential terms and conditions.
  • Under a contract between a company and a contractor, the company reserves the right to discipline the contractor's employees for misconduct or poor performance. In only one instance has the company exercised this authority: After the contractor's employee sexually harassed a co-worker on company property, the company told the contractor that the employee could no longer be on its premises. The company has not exercised direct and immediate control over the offending employee's terms and conditions of employment because that control was limited and not routine.
  • Under the terms of a franchise agreement, the franchisor and the franchisee agree to the health insurance plan and 401(k) plan that the franchisee must make available to its workers. The franchisor has exercised direct and immediate control over essential employment terms and conditions of the franchisee's employees.
  • Under the terms of a franchise agreement, a franchisor requires the franchisee to operate the franchisee's store between the hours of 6 a.m. and 11 p.m. The franchisor does not participate in scheduling assignments and allows the franchisee to select shift durations. The franchisor has not exercised direct and immediate control over essential terms and conditions of employment of the franchisee's employees.
  • Company A supplies line workers and first-line supervisors to Company B at B's manufacturing plant. Onsite managers employed by Company B regularly complain to A's supervisors about defective products coming off the assembly line. In response to those complaints and to remedy the deficiencies, Company A's supervisors decide to reassign employees and switch the order in which several tasks are performed. Company B has not exercised direct and immediate control over Company A's lineworkers' essential terms and conditions of employment.
  • A temporary staffing agency supplies eight nurses to a hospital to cover during staff shortages. Over time, the hospital hires other nurses as its own permanent employees. Each time the hospital hires its own permanent employee, it correspondingly requests fewer agency-supplied temporary nurses. The hospital has not exercised direct and immediate control over temporary nurses' essential terms and conditions of employment.

Dissent

In her dissent, NLRB member Lauren McFerran observed that Browning-Ferris Industries for now remains the current standard. She said that the board cited no evidence that this current standard was creating uncertainty in the labor-management community. Instead, she said, rulemaking creates more uncertainty by keeping the board's standard in flux.

McFerran also noted that Browning-Ferris Industries remains under review in the U.S. Circuit Court of Appeals for the District of Columbia. The board would benefit from the court's guidance, once it's issued, even if not required to follow it, she stated. She added, "If the majority's final rule could not be reconciled with the District of Columbia Circuit's Browning-Ferris decision, it presumably would not survive judicial review in that court."

However, Suflas predicted that the D.C. Circuit is likely to defer to the board, noting that the appeals court has long urged the NLRB to rely on rulemaking more than the board has in the past.

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