The National Labor Relations Board -- the federal agency that enforces federal labor laws -- tooks steps to liberalize a standard set during the Obama administration that had made it easier to hold companies liable for illegal labor practices committed by their contractors and franchisees. The majority of the five-member NLRB was appointed by President Donald Trump. It has proposed a rule that will restore a previous standard that held that companies can be considered to be joint employers with their contractors or franchisees only when exercising direct control over hiring, firing, setting wages, and other labor issues.
In 2015, the NLRB decided a case involving Browning-Ferris Industries Inc, a California-based sanitation company, in which it ruled that the company was deemed a joint employer when having even indirect influence over the working conditions of a contractor’s employees. Joint employers can be held liable for violations of labor law, and compelled to engage in collective bargaining. The NLRB ruled that Browning-Ferris was the joint employer of workers at a recycling plant where employees who had been provided by a staffing agency were seeking to join a labor union.
The proposed rule change was published in the Federal Register on Friday and allows a 60-day public comment period. Board Chairman John F. Ring stated, “I look forward to receiving the public’s comments and to working with my colleagues to promulgate a final rule that clarifies the joint-employer standard in a way that promotes meaningful collective bargaining and advances the purposes of the Act.” Ring was joined by Board Members Marvin E. Kaplan, and William J. Emanuel in proposing the new joint-employer standard. Board Member Lauren McFerran, a Democrat who once worked for Sen. Ted Kennedy, dissented.
The joint employer issue has been controversial since the Democrat-controlled NLRB changed the standard. Numerous small business owners testified before Congress and testified that the standard stifled business expansion plans and created other difficulties. The U.S. Chamber of Commerce and other business groups had made rescinding the Browning-Ferris ruling a top priority, arguing that it would harm franchises and supply chains. NLRB’s announcement on
Thursday was greeted warmly by the U.S. Chamber of Commerce and other business groups and some Republicans.
Democrats and labor unions claimed that the 2015 Obama standard was necessary because of the increase in the outsourcing of labor in many industries over the last few decades.
Trey Kovacs of the Competitive Enterprise Institute released a statement hailing the NLRB announcement. “The NLRB’s proposed rule seeks to restore long standing principles on what establishes a joint employer relationship, which rightly center around direct and substantive control over work conditions of another business. The proposed new standard will create greater certainty for businesses, which will allow employers to plan for the future and be confident in knowing what kinds of business-to-business relationship will establish a joint employer relationship.”
Under the NLRB’s joint-employer doctrine, the NLRB analyzes whether two separate businesses (e.g., service provider and client, franchisor and franchisee) “share sufficient control over key employment terms such that both enterprises may have joint collective bargaining obligations, or may be jointly liable for certain unfair labor practices,” according to the Seyfarth Shaw international law firm.
The August 2015 decision by NLRB overruled 30 years of precedent and thus expanded its joint-employer standard. In the case of Browning-Ferris Industries of California, Inc., NLRB ruled that it no longer would require proof that a putative joint employer has exercised any “direct and immediate” control over the essential working conditions of another company’s workers. Under the Board’s BFI standard, a company could be deemed a joint-employer even if its “control” over the essential working conditions of another business’s employees was indirect, limited and routine, or contractually reserved but never exercised.
The NLRB’s BFI decision currently is on appeal to the United States Court of Appeals for the District of Columbia Circuit. Seyfarth Shaw represents the appellant, Browning-Ferris Industries of California, Inc., in that case.
Under the NLRB’s new proposed rule, employers may be found to be a joint-employer of another employer’s employees only if it possesses and “exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority no longer would be sufficient to establish a joint-employer relationship.”
Proposed Rule and Examples
§ 103.40: Joint employers
An employer, as defined by Section 2(2) of the National Labor Relations Act (the Act), 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. A 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.
EXAMPLE 1 to § 103.40. Company A supplies labor to Company B. The business contract between Company A and Company B is a “cost plus” arrangement that establishes a maximum reimbursable labor expense while leaving Company A free to set the wages and benefits of its employees as it sees fit. Company B does not possess and has not exercised direct and immediate control over the employees’ wage rates and benefits.
EXAMPLE 2 to § 103.40. 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. Company B has possessed and exercised direct and immediate control over the employees’ wage rates.
EXAMPLE 3 to § 103.40. Company A supplies line workers and first-line supervisors to Company B at B’s manufacturing plant. On-site 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.
EXAMPLE 4 to § 103.40. Company A supplies line workers and first-line supervisors to Company B at B’s manufacturing plant. Company B also employs supervisors on site who regularly require the Company A supervisors to relay detailed supervisory instructions regarding how employees are to perform their work. As required, Company A supervisors relay those instructions to the line workers. Company B possesses and exercises direct and immediate control over Company A’s line workers. The fact that Company B conveys its supervisory commands through Company A’s supervisors rather than directly to Company A’s line workers fails to negate the direct and immediate supervisory control.
EXAMPLE 5 to § 103.40. Under the terms of a franchise agreement, Franchisor requires Franchisee to operate Franchisee’s store between the hours of 6:00 a.m. and 11:00 p.m. Franchisor does not participate in individual scheduling assignments or preclude Franchisee from selecting shift durations. Franchisor has not exercised direct and immediate control over essential terms and conditions of employment of Franchisee’s employees.
EXAMPLE 6 to § 103.40. 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. Franchisor has exercised direct and immediate control over essential employment terms and conditions of Franchisee’s employees.
EXAMPLE 7 to § 103.40. Temporary Staffing Agency supplies 8 nurses to Hospital to cover during temporary shortfall in staffing. Over time, Hospital hires other nurses as its own permanent employees. Each time Hospital hires its own permanent employee, it correspondingly requests fewer Agency-supplied temporary nurses. Hospital has not exercised direct and immediate control over temporary nurses’ essential terms and conditions of employment.
EXAMPLE 8 to § 103.40. 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. Hospital has exercised direct and immediate control over temporary nurses’ essential terms and conditions of employment.
EXAMPLE 9 to § 103.40. Manufacturing Company contracts with Independent Trucking Company (“ITC”) to haul products from its assembly plants to distribution facilities. Manufacturing Company is the only customer of ITC. Unionized drivers—who are employees of ITC—seek increased wages during collective bargaining with ITC. In response, ITC asserts that it is unable to increase drivers’ wages based on its current contract with Manufacturing Company. Manufacturing Company refuses ITC’s request to increase its contract payments. Manufacturing Company has not exercised direct and immediate control over the drivers’ terms and conditions of employment.
EXAMPLE 10 to § 103.40. Business contract between Company and a Contractor reserves a right to Company to discipline the Contractor’s employees for misconduct or poor performance. Company has never actually exercised its authority under this provision. Company has not exercised direct and immediate control over the Contractor’s employees’ terms and conditions of employment.
EXAMPLE 11 to § 103.40. 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. Company has exercised direct and immediate control over Contractor’s employees’ essential terms and conditions.
EXAMPLE 12 to § 103.40. Business contract between Company and Contractor reserves a right to Company to discipline Contractor’s employees for misconduct or poor performance. User has not exercised this authority with the following exception. Contractor’s employee engages in serious misconduct on Company’s property, committing severe sexual harassment of a coworker. Company informs Contractor that offending employee will no longer be permitted on its premises. Company has not exercised direct and immediate control over offending employee’s terms and conditions of employment in a manner that is not limited and routine.