By Michael J. Lotito, a Shareholder in the San Francisco, CA and Washington, DC offices of Littler Mendelson PC, and James A. Paretti, Jr., a Shareholder in the firm’s Washington, DC office.
The National Labor Relations Board (NLRB) last month published a proposed rule that would revise the test for determining whether two employers are considered “joint employers” under the National Labor Relations Act. Definition of Joint Employer, 83 Fed. Reg. 46681 (Sept. 14, 2018). The proposed rule would reverse the Board’s dramatic expansion of the definition of “joint employer” through its 2015 Browning-Ferris decision, and restore the common-sense “direct control” test that had been settled law for more than thirty years.
Comments are due on November 13, 2018. In addition, the Board will permit parties to submit replies to comments on or before November 20, 2018. Those comments should be limited to replying to comments other parties previously filed. Comments and replies may be submitted via hard copy or electronically at this link: https://www.regulations.gov/document?D=NLRB_FRDOC_0001-0108.
By way of background, a key priority of organized labor and the plaintiffs’ bar in recent years has been to expand the circumstances under which two separate employers (for example, a franchisor and franchisee, or a business and an unrelated contractor) may be considered the “joint employers” of an employee. Joint-employer status can have significant consequences for an employer. A joint employer may be required to bargain with a union representing jointly-employed workers; can be held jointly and severally liable for unfair labor practices committed by the other employer; and may be subject to labor picketing that would otherwise be unlawful. Moreover, as a practical matter, in many instances a “joint employer” will provide plaintiffs’ lawyers with a far deeper pocket for recovery than a smaller, stand-alone entity.
The NLRB’s proposed rule would make clear that an employer will be considered a “joint employer” of a separate company’s employees only when that employer possesses and exercises “substantial direct and immediate control” over the essential terms and conditions of employment (such as hiring, firing, discipline, supervision, and direction) of the second company’s employees. Even where an employer exercises direct control over another employer’s workers, it will not be held to be a joint employer if such control is “limited and routine.”
The proposed rule would reverse the NLRB’s 2015 Browning-Ferris decision, which upended years of precedent to dramatically expand the definition of “joint employer” and categorize many more independent companies as “joint employers.” Under Browning-Ferris, two entities would be deemed joint employers based on the mere existence of reserved joint control, indirect control, or control that is limited and routine. The decision drastically increased the universe of potential joint employers and was the subject of intense negative scrutiny, including congressional hearings geared toward overturning the decision. The legality of the Browning-Ferris standard is currently being litigated before the U.S. Court of Appeals for the District of Columbia Circuit.
In the proposed rule, the Board explained why setting a standard through a rulemaking (rather than via case-by-case adjudication) is desirable. As the Board explained, a rulemaking allows interested parties with experience in the wide range of complex employment relationships to have input on proposed changes; allows the Board to clarify what constitutes joint-employer status under various hypothetical scenarios; and provides employers, unions, and employees the ability to structure their businesses free of legal uncertainty and the possibility of sudden change through the adjudicative process. In 2017, the Board reversed Browning Ferris in the case of Hy-Brand Industrial Contractors, Ltd., but that decision was subsequently withdrawn for reasons unrelated to the substance of the joint-employer issue.
Counsel are strongly advised to file comments in support of the Board’s proposed rule. It may be employers’ best chance to restore a fair and balanced definition of “joint employer.”