Joint-Employer Status: The National Labor Relations Board Set to Change Standard (Again)

On September 14, 2018, the National Labor Relations Board (NLRB) published a Notice of Proposed Rulemaking addressing its joint-employer standard, which governs when two distinct business entities will be considered a joint employer under the National Labor Relations Act (Act).  Under the Proposed Rule, the NLRB would return to its long-standing test that an entity must both possess and exercise direct control over employees’ terms and conditions of employment in order to be considered a joint employer.  The effect of the Proposed Rule would be to avoid unintentionally drawing third parties, who have not played an active role in deciding wages or other essential terms and conditions of employment for employees of a separate entity, into a collective-bargaining relationship.  With the Proposed Rule’s imposition of a more concrete and stringent standard, businesses will have greater certainty that they will not be held jointly and severally liable for unfair labor practices committed by their business partners.  Although this development should be of particular interest to franchisors and entities that utilize the services of vendor employees and staffing agencies, it has the potential to affect all entities covered by the Act.

The Act does not define the term “joint employer,” which has prompted an ongoing dispute over how to address situations where the working conditions of a group of employees are affected by two separate companies engaged in a business relationship.  For over thirty years, a joint-employer relationship arose if two independent business partners shared or codetermined those matters governing employees’ essential terms and conditions of employment; the putative joint employer possessed the right to control the terms and conditions of its business partner’s employees’ employment; and the putative joint employer exercised that control directly, immediately, and in a broad manner.

That changed in 2015 when the NLRB issued its decision in Browning-Ferris Industries of California.  In that decision, the NLRB greatly expanded the joint-employer standard by holding that the “right to control” any matter governing the “essential terms and conditions of employment” in and of itself is “probative of joint-employer status.”  No longer was direct control or the exercise of control required; 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 was contractually reserved, but never exercised.  The Browning-Ferris decision thus rests on the premise that the rights of employees under the Act are best advanced if an independent business partner (the putative joint employer) participates in the collective-bargaining process any time that business partner has the potential to impact, even in a limited fashion, the represented employees’ terms and conditions of employment.

The relaxation of the standard prompted an appeal to the D.C. Circuit, which remains pending.  Shortly after the appeal was filed, a newly recomposed majority of the NLRB overruled Browning-Ferris in Hy-Brand Industrial Contractors, Ltd., and restored the preexisting standard that required proof that a joint employer actually exercised direct and immediate control in a manner that was neither limited nor routine.  The return to prior precedent was short-lived.  On February 26, 2018, the NLRB vacated its decision in Hy-Brand for reasons unrelated to the merits of the decision.   The vacatur of Hy-Brand effectively reinstated Browning-Ferris.

Now, a majority of the NLRB has resolved to address the issue and overrule Browning-Ferris through rulemaking.  If adopted, the Proposed Rule will require a finding that the putative joint employer “possess[ed] and actually exercised[ed] substantial direct and immediate control over the employee’s essential terms and conditions of employment” before a joint employer relationship is established.  Accordingly, businesses and employers should welcome the new standard as it will provide greater clarity to joint-employer determinations and ensure that only those employers who can meaningfully contribute to collective bargaining are at the table.

The Notice of Proposed Rulemaking, along with the full text of the Proposed Rule, is available here.  Following the Notice and Comment period, the NLRB may adopt its proposed joint-employer standard in a final rule, issue a supplemental proposed rule, or terminate the rulemaking process.  Until a final rule is adopted, a majority of the NLRB overrules Browning-Ferris, or, perhaps, the D.C. Circuit Court of Appeals renders a decision, the joint employer standard continues to be governed by the expanded Browning-Ferris definition.  Given this state of flux, all employers should carefully watch developments in this area.