The National Labor Relations Board (NLRB) proposes to issue a regulation that would redefine  “joint employer” for purposes of labor relations and collective bargaining.  Although the proposed Board action does not repeal or rescind any existing regulation, it would effectively repeal and replace the present NLRB standard for “joint employer” status.  A determination by the Board regarding whether two separate businesses constitute  “joint employers” as to a group of employees has significant consequences for businesses, unions, and employees alike. When the Board finds a joint-employer relationship, it may compel the joint employer to bargain in good faith with a Board-certified or voluntarily recognized bargaining representative of the jointly-employed workers. Additionally, each joint employer may be found jointly and severally liable for unfair labor practices committed by the other. And a finding of joint-employer status may determine whether picketing directed at a particular business is primary and lawful, or secondary and unlawful.  Comments on the proposed regulation must be received by the NLRB on or before January 14, 2019 in order to be considered.

Basics and Bullets:

  • “Joint Employer” issues arise in various situations, including where a business contracts with another company that furnishes manpower to perform certain tasks or services involved in the first business’s operations (e.g., housekeeping, janitorial, security, food, data entry, secretarial, or any of a a wide range of other types of services).  It also commonly arises in franchise scenarios (for example, where franchisees of the McDonald’s corporation run individual restaurants and directly employ the restaurant workers).
  • Historically, the NLRB has further refined this standard through its Decisions in cases before the Board.
  • Before 2015,  the Joint Employer standard under Board precedents included a requirement that both employers actually exercise “direct and immediate” control over employees that is “not limited and routine.”
  • A 2015 Decision of the NLRB expanded the Joint Employer standard to provide more generally that  “two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.” The decision expressly abandoned any requirement that control of the employee workforce had to be “direct” or that it had to actually be exercised by both companies with the right and capacity to exercise such control.
  • The proposed regulation would essentially return to the pre-2015 Joint Employer standard, but  might even be more restrictive, in that it would require that the control actually exercised by both joint employers be “substantial.”
Summary of the Proposed Rule and What’s at Stake: 

The proposed rule defines “Joint Employers” of an employee workforce be two employers that not only have the right to exercise, but actually do exercise direct, immediate, and substantial control of employees with respect to the essential terms and conditions of their employment. Because it is considerably more restrictive than the standard established in the Board’s 2015 precedent (which recognized indirect control over employees and a right to control terms and conditions of their employment, even if that right is not exercised), the proposed regulation tends to favor employer interests over those of employees.  If implemented, the new rule would make it more difficult for employees to engage in collective bargaining, and would insulate certain businesses from liability for violations of employee rights that may be factually, but only indirectly, attributable to the actions or policies of those businesses.  The regulation would have significant impact on the rights and bargaining power of, for example, hotel and restaurant workers, as well as employees in other industrial sectors.

The Board’s Justification for its Proposal:

The NLRB explains that it now believes a joint-employer doctrine that imposes bargaining obligations only on putative joint employers that have actually played an active role in establishing essential terms and conditions of employment best serves the National Labor Relations Act’s purposes of promoting collective bargaining and minimizing industrial strife. Those purposes, according to the Board, would not be furthered by drawing into an employer’s collective-bargaining relationship, or exposing to joint-and-several liability, a business partner of the employer that does not actively participate in decisions setting unit employees’ wages, benefits, and other essential terms and conditions of employment. In addition, the Board believes that 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. In the current Board’s view,  the proposed rule will provide greater clarity to joint-employer determinations without leaving out parties necessary to meaningful collective bargaining.

The Board also offers several reasons for its decision to proceed by rulemaking to revise the Joint Employer standard (instead of leaving definition of the standard to NLRB case law, as in the past). First, given the relatively recent oscillation on the joint-employer standard in NLRB precedent, the wide variety of business relationships that it may affect (e.g., user-supplier, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, lessor-lessee, parent-subsidiary, and contractor-consumer), and the wide-ranging import of a joint-employer determination for the affected parties, the Board states that public comment on the issue would be useful.  Second, using the rulemaking procedure enables the Board to clarify what constitutes the actual exercise of substantial direct and immediate control by use of hypothetical scenarios, some examples of which are set forth in the preamble to the proposed new rule, instead of being constrained by the facts of a particular case that might come before the Board for adjudication. Third, the Board reasons that by establishing the joint-employer standard in the Board’s Rules & Regulations, employers, unions, and employees will be able to plan their affairs free of the uncertainty that the legal regime may change on a moment’s notice (and possibly retroactively) through the adjudication process.

Additional Information and Resources for a Deeper Dive:

The NLRB’s Notice of Proposed Rulemaking sets forth a reasonably comprehensive and informative summary of the historical development of the Board’s Joint Employer definition through its case law over time, including variations in that standard as interpreted and applied in particular cases.  The Obama-era NLRB’s rationale for establishing a more liberal, and more employee and union-friendly, definition of Joint Employer — which revolved in large part around contemporary developments and changes in the landscape of business staffing practices and employer-employee relationships — is explained in the NLRB’s August, 2015 Decision in the case of  Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, and FPR-II, LLC, d/b/a Leadpoint Business Services, and Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters, Petitioner. Case 32–RC–109684 (Browning-Ferris). You may wish to read the Browning-Ferris Decision (follow the link provided to the NLRB website, scroll down, and click on the name of the case) in order to better understand the legal and policy arguments for a more relaxed joint-employer standard.

In Browning-Ferris, the majority of the NLRB viewed Board precedent between 1984 and 2015 as having unreasonably “narrowed” the Board’s joint-employer standard precisely when temporary and contingent employment relationships were on the rise. In its view, under changing patterns of industrial life, a proper joint-employer standard should not be any “narrower than statutorily required;” and a requirement of exercise of direct and immediate control that is not limited and routine “is not compelled by, or even consistent with, the common law.  Thus the Browning-Ferris majority viewed the common-law concept of the “right to control” the manner and means of a worker’s job performance—used to distinguish a servant (i.e.,employee) from an independent contractor—as precluding, or at least counseling against, any requirement of exercise of direct and immediate control in the joint-employment context. Its decision reflected a belief that it is wise, and consistent with the common law, to include in the collective-bargaining process an employer’s independent business partner that has an indirect or potential impact on the employees’ essential terms and conditions of employment, even where the business partner has not itself actually established those essential employment terms or collaborated with the undisputed employer in setting them. The Browning-Ferris majority believed that requiring such a business partner to take a seat at the negotiating table and to bargain over the terms that it indirectly impacts (or could, in the future, impact under a contractual reservation) best implements the right of employees under Section 7 of the Act to bargain collectively through representatives of their own choosing.

After Browning-Ferris, and after President Trump’s inauguration and a change in the Board’s composition, a new Board majority overruled Browning-Ferris 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. However the Board’s decision in that  case (Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017)) was vacated because of a finding by the NLRB’s Inspector General that the Board’s 3-2 decision in that case had been tainted by a serious ethical (conflict of interest) violation.  This effectively returned the law to the comparatively relaxed joint-employer standard adopted in Browning-Ferris.  Meanwhile, a petition for review of the Board’s Browning-Ferris decision remains pending in the U.S. Court of Appeals for the District of Columbia Circuit.

Informative online articles about the joint-employer standard and the proposed regulation to narrow that standard have appeared in the New York Times as well as in Forbes magazine.  Industry publications that have covered the issue include Nation’s Restaurant News,a management-focused newsletter called HR Dive, and the Insurance Journal.  In addition, you may find it useful to review updates and analyses of the evolution of the joint-employer standard on certain law firm websites, such as a recent Management Memo issued by the law firm of Epstein Becker Green, and (for a more historical perspective on the joint-employer issue  an article that appeared on the Orrick blog.about guidance issued in 2016.

If you are ready to comment on the proposed Joint Employer regulation, you can visit the Comment Page for that proposal on the Government’s eRulemaking website, type your comments into the box provided for that purpose, and follow the other instructions on that page for submission. Alternatively, comments in letter form can be mailed or hand-delivered to Roxanne Rothschild, Associate Executive Secretary, National Labor Relations Board, 1015 Half Street SE, Washington, DC 20570-0001. (If commenting by hard-copy letter, however, you should take into consideration the fact that, because of security precautions, the NLRB continues to experience delays in U.S. mail delivery, and this may make it more difficult to meet the deadline for comment submission.  If you do send a letter via mail or hand-delivery, the Board  recommends that you confirm receipt of your delivered comments by contacting (202) 273-2917. Individuals with hearing impairments may call 1-866-315-6572 (TTY/TDD)).

In order to be considered, all comments must be received by the NLRB on or before January 14, 2019, Eastern Time.   (Comments in direct reply to specific comments submitted by other members of the public will be accepted, however, until January 21, 2019.)