NLRB Notice of Proposed Rulemaking on Joint Employment- “We Reject Maintaining the Status Quo”
Over the past decade, courts and government agencies (and even some legislatures) have taken an increasingly broad approach to joint employment. Often the broad approach seems designed to provide workers with access to deep pockets when they allegedly suffer a wrong in the workplace rather than reflecting the practicality that a company should not be held liable for actions of another business simply because it has a contractual relationship with that business. The joint employment doctrine of late has become difficult to understand and undermines basic contractual relationships between businesses. Yesterday the National Labor Relations Board (“NLRB” or the “Board”) announced a proposal to offer companies clarity and a return to common sense.
Joint Employment Under the NLRA
The Board begins its explanation for the proposed Rule by stating that a finding of joint employment under the National Labor Relations Act (“NLRA” or the “Act”) requires the joint employer to bargain in good faith with a Board-certified or voluntarily recognized bargaining representative of the jointly-employed workers, and that a joint employer may be found jointly and severally liable for unfair labor practices committed by the other joint employer.
The Proposed Rule
Joint employment under the proposed Rule will now only be found “if 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.”
The proposed Rule lists twelve examples of its application. Some important distinctions are drawn by the examples. One such distinction is that payment by a company to a contractor for labor at a set rate, leaving the contractor to determine how to pay its workers, will not be considered direct and immediate control over the employee’s wages unless the company establishes the rate the contractor must pay its employees. Another distinction relates to supervisory control, cautioning companies that if they manage the performance of workers provided by a contractor, as opposed to merely reassigning or rearranging such workers in response to complaints about quality of work, the company has exercised direct and immediate supervisory control. Additional distinctions address franchise relationships, temporary staffing agencies, and the impact of unexercised contractual rights to discipline or manage performance of employees of another business.
This proposed Rule represents a substantial departure from the test the Board announced in 2015 in Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (2015), in which the Board stated that it would not require proof that a putative joint employer exercised any “direct and immediate” control over the essential working conditions of another company’s workers. The proposed Rule flatly rejects that standard and the position the Board took in Browning-Ferris that it would find joint employment where a company’s control over another business’s workers was indirect, limited and routine, or contractually reserved but never exercised.
In the preamble to the proposed Rule, the Board explained its rationale for making this change through rulemaking as well as its rationale for the substantive change to the Board’s approach to joint employment.
Typically, the Board announces its interpretation of the Act through its adjudication of particular cases. Recognizing that this approach has led to “recent oscillation” as to the joint employment standard, the Board opted for rulemaking. Explaining its decision to make the change through rulemaking, the Board identified three benefits. First, the rulemaking process provides an opportunity for public comment on a matter of great import. Second, rulemaking, including the provision of examples of situations in which joint employment exists or does not exist, offers more clarity. Third, employers and unions are “free of the uncertainty that the legal regime may change on a moment’s notice (and possibly retroactively) through the adjudication process.”
As to the basis for changing the Board’s interpretation of the Act, the Board pointed to the definition of employer and employee under the Act and noted that the current Board precedent, as set forth in the case of Browning-Ferris, is inconsistent with the statute and common law concept of agency. (The Board previously attempted to overrule the joint employment standard set forth in Browning-Ferris through adjudication, but a bizarre series of alleged conflicts of interest resulted in that decision being vacated.) The Board explained that “the requirement of direct and immediate control reflects the commonsense understanding that two contracting enterprises will, of necessity, have some impact on each other’s operations and respective employees.”
Although the proposed Rule reflects the commonsense reality that companies should not be required to bargain with or be held liable for the unfair labor practices of businesses they contract with, there are many other statutes that continue to be interpreted in a manner that would hold liable as joint employers companies that have not participated at all in the alleged wrongdoing, such as the EEOC’s interpretation of joint employment under anti-discrimination laws and many courts’ interpretations of wage and hour laws. Companies engaging in contractual relationships with other businesses must remain keenly aware of the potential impact of the joint employer doctrine. Employers must choose whether to take actions to minimize the likelihood that they will be deemed a joint employer or accept the reality of a joint employment relationship and the resulting obligation to verify compliance with applicable laws.