Labor & Employment Law Daily NLRB proposes new joint-employer standard tracking vacated Hy-Brand decision
Monday, September 17, 2018

NLRB proposes new joint-employer standard tracking vacated Hy-Brand decision

By Pamela Wolf, J.D.

The National Labor Relations Board has taken the widely anticipated step that has been on the radar of labor and employment lawyers for several months—it has released its proposed rule on the standard for determining joint-employer status. Under the proposal, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. The putative joint employer must possess and actually exercise substantial, direct, and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.

This proposed standard, slated for publication in the Federal Register on September 14, is consistent with the standard announced in the Board’s earlier Hy-Brand Industrial Contractors decision from December 2017, a failed effort to overturn the current standard in place under the Board’s Browning-Ferris ruling from 2015.

In the past, the joint-employment standard has been determined through the adjudication of cases. But the Republican-majority Board has determined to use the rulemaking route in order to “more effectively enforce” the National Labor Relations Act and to “further the purposes of the Act.” This rulemaking “will foster predictability and consistency regarding determinations of joint-employer status in a variety of business relationships, thereby promoting labor-management stability, one of the principal purposes of the Act,” according to the Board.

Hy-Brand codified. The joint-employer standard proposed under this rule, if approved without change, would codify the standard announced in the Board’s now-vacated December 2017 Hy-Brand Industrial Contractors, Ltd. decision. Hy-Brand, which was issued by a divided Board while the clock was ticking on NLRB Chair Philip Miscimarra’s December 16 departure and emboldened by a Republican majority finally intact, overruled the controversial Obama-era Browning-Ferris Industries decision, which expanded the scope of joint-employer liability.

In Hy-Brand, the NLRB ruled that in all future and pending cases, two or more entities would be deemed joint employers under the NLRA if there is proof that one entity actually has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. Proof of indirect control, contractually reserved control that has never been exercised, or control that is “limited” and “routine” would not be sufficient to establish a joint employer relationship.

On February 26, 2018, the Board vacated Hy-Brand after an NLRB inspector general’s report found that Member William Emanuel should not have participated in the decision due to his former law firm’s representation of one of the parties in Browning-Ferris. Hy-Brand amounted to a “do-over” for the Browning-Ferris parties, according to the report. As such, Emanuel had a conflict of interest that should have kept him from participating in the Hy-Brand case. As it stands today, the Browning-Ferris standard determines joint-employment cases before the Board.

Dissent. Dissenting Board Member Lauren McFerran, the lone Democrat on the Republican-majority Board, harshly criticized the regulatory move. “Today, the majority resumes the effort to overrule the Board’s 2015 joint-employer decision in Browning-Ferris, which remains pending on review in the United States Court of Appeals for the District of Columbia Circuit,” she wrote, tracing the history of the majority’s efforts to roll back that decision since the Trump Administration took office. “An initial attempt to overrule Browning-Ferris via adjudication—in a case where the issue was neither raised nor briefed by the parties—failed when the participation of a Board member who was disqualified required that the decision be vacated. Now, the Board majority, expressing new support for the value of public participation, proposes to codify the same standard endorsed in Hy-Brand I via a different route: rulemaking rather than adjudication. The majority tacitly acknowledges that the predictable result of the proposed rule would be fewer joint employer findings.” (Footnotes omitted).

McFerran pointed out that the Board had recently made or proposed sweeping changes to labor law in adjudications that went “well beyond the facts of the cases at hand” and addressed issues that “might arguably have been better suited to consideration via rulemaking.” But in contrast here, the Board decided to proceed by rulemaking, if belatedly. “Reasonable minds might question why the majority is pursuing rulemaking here and now,” she said, noting also that it’s common knowledge that the Board’s limited resources are severely taxed when it undertakes a rulemaking. “But whatever the rationale, and whatever process the Board may use, the fact remains that there is no good reason to revisit Browning-Ferris, much less to propose replacing its joint-employer standard with a test that fails the threshold test of consistency with the common law and that defies the stated goal of the National Labor Relations Act: ‘encouraging the practice and procedure of collective bargaining,’” McFerran wrote.

Board’s “preliminary” view. In its notice of proposed rulemaking, the Board said that the proposal reflects its “preliminary view,” subject to potential revision in response to comments, that the NRLA’s purposes of promoting collective bargaining and minimizing industrial strife will be best served by a joint-employer doctrine that imposes bargaining obligations on putative joint employers “that have actually played an active role in establishing essential terms and conditions of employment.”

Said differently, the Board’s initial take is that the NLRA’s purposes would not be furthered by drawing into an employer’s collective bargaining relationship, or exposing to joint-and-several liability, an employer’s “partner” that does not actively participate in decisions setting unit employees’ wages, benefits, and other essential terms and conditions of employment. Under the Board’s preliminary position, absent a requirement of proof of some “direct and immediate” control to find a joint-employment relationship, “it will be extremely difficult for the Board to accurately police the line between independent commercial contractors and genuine joint employers.”

The Board said that it is inclined to conclude that its proposed rule “will provide greater clarity to joint-employer determinations without leaving out parties necessary to meaningful collective bargaining.”

Common law principles. The Board’s proposed standard is consistent with the common law of joint-employer relationships and its requirement of exercise of direct and immediate control, as reflected in cases such as Airborne Express, 338 NLRB 597 (2002), and has been met with judicial approval, according to the proposed rule notice. The rule is likewise consistent with Supreme Court precedent and that of lower courts, “which have recognized that contracting enterprises often have some influence over the work performed by each other’s workers without destroying their status as independent employers,” the Board wrote, citing NLRB v. Denver Building & Construction Trades Council, 341 U.S. 675, 689-690 (1951), where the High Court “held that a contractor’s exercise of supervision over a subcontractor’s work ‘did not eliminate the status of each as an independent contractor or make the employees of one the employees of the other,’ emphasizing that ‘[t]he business relationship between independent contractors is too well established in the law to be overridden without clear language doing so.’”

Direct and immediate control. Moreover, the requirement of “direct and immediate” control “seems to reflect a commonsense understanding that two contracting enterprises will, of necessity, have some impact on each other’s operations and respective employees,” according to the Board, which also pointed to this language in Southern California Gas Co., 302 NLRB at 461 (1991): “An employer receiving contracted labor services will of necessity exercise sufficient control over the operations of the contractor at its facility so that it will be in a position to take action to prevent disruption of its own operations or to see that it is obtaining the services it contracted for. It follows that the existence of such control, is not in and of itself, sufficient justification for finding that the customer-employer is a joint employer of its contractor’s employees. Generally a joint employer finding is justified where it has been demonstrated that the employer-customer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.”

But it must be “substantial,” too. However, the Board said it is “presently inclined to find,” consistent with earlier NLRB cases, that “even a putative joint employer’s ‘direct and immediate’ control over employment terms may not give rise to a joint-employer relationship where that control is too limited in scope,” citing Flagstaff Medical Center, 357 NLRB 659 (2011) and Lee Hospital, 300 NLRB 947, 948-950 (1990). Cases like these are consistent with the Board’s “present inclination to find that a putative joint employer must exercise substantial direct and immediate control before it is appropriate to impose joint and several liability on the putative joint employer and to compel it to sit at the bargaining table and bargain in good faith with the bargaining representative of its business partner’s employees.”

Thus, under the proposed rule, “there must exist evidence of direct and immediate control before a joint-employer relationship can be found,” the Board said. It is not enough to establish joint-employer status “where the degree of a putative joint employer’s control is too limited in scope (perhaps affecting a single essential working condition and/or exercised rarely during the putative joint employer’s relationship with the undisputed employer).”

Examples: The proposed rule provides a dozen examples to illustrate when a joint-employer relationship would be found under the proposed rule’s requirements. Joint-employment would be found under the following scenarios:

  • Company A supplies labor to Company B. The business contract between Company A and Company B establishes the wage rate that Company A must pay to its employees, leaving A without discretion to depart from the contractual rate.
  • Under the terms of a franchise agreement, Franchisor and Franchisee agree to the particular health insurance plan and 401(k) plan that the Franchisee must make available to its workers.
  • Temporary Staffing Agency supplies 8 nurses to Hospital to cover for temporary shortfall in staffing. Hospital manager reviewed resumes submitted by 12 candidates identified by Agency, participated in interviews of those candidates, and together with Agency manager selected for hire the best 8 candidates based on their experience and skills.
  • Business contract between Company and Contractor reserves a right to Company to discipline the Contractor’s employees for misconduct or poor performance. The business contract also permits either party to terminate the business contract at any time without cause. Company has never directly disciplined Contractor’s employees. However, Company has with some frequency informed Contractor that particular employees have engaged in misconduct or performed poorly while suggesting that a prudent employer would certainly discipline those employees and remarking upon its rights under the business contract. The record indicates that, but for Company’s input, Contractor would not have imposed discipline or would have imposed lesser discipline.

Comments. While the Board is seeking comments on all aspects of the proposed rule, it is particularly seeking input from employees, unions, and employers about their experience in workplaces where multiple employers have some authority over the workplace. This may include the following experiences:

  • with labor disputes and how the extent of control possessed or exercised by the employers affected those disputes and their resolution;
  • organizing and representing such workplaces for the purpose of collective bargaining and how the extent of control possessed or exercised by the employers affected organizing and representational activities; and
  • managing such workplaces, including how legal requirements affect business practices and contractual arrangements.

The Board is also interested in comments on the benefits to business practices and collective bargaining that interested parties believe might result from finalization of the proposed rule, as well as what harms, if any may result. The Board also would like comments on the current state of the common law on joint-employment relationships and posed these questions:

  • Does the common law dictate the approach of the proposed rule or of Browning-Ferris?
  • Does the common law leave room for either approach?
  • Do the examples set forth in the proposed rule provide useful guidance and suggest proper outcomes?
  • What further examples, if any, would furnish additional useful guidance?

Comments on the proposed rule must be received by the Board on or before 60 days after the proposal is published in the Federal Register, which is anticipated to be September 14, 2018. Details for submitting comments are provided in the notice of proposed rulemaking.

Franchise employers very pleased. The franchise employer community, which was particularly impacted by the Browning-Ferris standard, welcomed the proposed rule. International Franchise Association (IFA) President and CEO Robert Cresanti called it “good news for franchises and franchise employees across the country.” He said that franchise owners have been confused about what he labeled “the vague and uncertain legal minefield” that has been created by the Board’s joint employer standard ever since it was expanded by the Browning-Ferris decision. “Rulemaking is an important step to address the concerns of local business owners by providing the clear lines in the determination of joint-employer status. We look forward to participating in the public notice and comment process in the coming days,” Cresanti said.

Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-Tenn.) echoed the IFA’s applause. “The NLRB’s proposed rule is good news for the men and women operating our nation’s 780,000 franchises,” he said. “It would return to the standard that for decades required that for a business to be considered a ‘joint employer,’ it must hold direct control over the terms and conditions of a worker’s employment.”

“The Obama Administration’s expansion of the ‘joint employer’ standard threatened to destroy the American Dream for owners of a franchise business,” Alexander continued. “That decision said that merely indirect control over employees’ working conditions could make a franchisee and franchisor joint employers—discouraging large companies from franchising at all. The NLRB’s new proposed rule would return to the earlier joint employer standard and restore a path to the middle class for small businessmen and women across the country. This is good news for all Americans who value the opportunity to work hard and climb the ladder of success.”

Interested in submitting an article?

Submit your information to us today!

Learn More

Labor & Employment Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on labor and employment legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.