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Big Changes on the Way: What You Need to Know about the Joint Employer Rule

Aug. 16, 2018
With new standards under the Republican-majority board, employers will likely have far more flexibility to engage with the employees of other organizations and not be found a joint employer.

The expansive joint employment standard implemented by the National Labor Relations Board in 2015 appears likely to change soon.  On June 5, 2018, the Chairman of the Board, John Ring, announced that the Board will develop rules setting forth the standards for determining whether an organization is a "joint employer" for the purposes of the National Labor Relations Act. With new standards under the Republican-majority board, employers will likely have far more flexibility to engage with the employees of other organizations and not be found a joint employer.  

The Broad Joint Employer Test Under Browning-Ferris

The National Labor Relations Board (NLRB) is the federal agency tasked with enforcing the National Labor Relations Act (NLRA), the United States' foundational statute guaranteeing the basic rights of private sector employees to organize into trade unions, engage in collective bargaining and take collective action, such as striking, if necessary. In August 2015, the five-member President Barack Obama-era Board issued Browning-Ferris Industries of California, Inc., 362 NLRB No. 186, a sweeping decision that expanded the definition of "joint employer" under the NLRA.

  Abandoning 30 years of precedent that required "direct" and "immediate" control over employees' working conditions for a finding of joint employer status, the NLRB held instead that "indirect" or "potential" control is sufficient. This meant that manufacturers could be held liable for the subcontractor's unfair labor practices, and they could be subject to union-organizing campaigns or labor disputes with the subcontractor's labor unions, even if they could do very little to control those employees. For example, the Board in Browning-Ferris found the following circumstances around an employers' control over the temporary agency's employees to be sufficient to establish joint employment:

  • Requiring temps to "meet or exceed" the selection procedures and tests required of regular employees
  • Requiring temps to pass pre-employment drug tests
  • Retaining the right to reject a temp that was referred to the employer
  • An instance in which the employer's supervisor witnessed a temp's misconduct (drinking on the job) and reported it to the temp agency, requesting the temp's immediate dismissal
  • The employer's supervisors instructing temps on how to work "faster and smarter"
  • The employer's supervisors issuing instructions to temps through the temp agency supervisors
  • Retaining the right to determine when overtime is necessary
  • Prohibiting the temp agency from paying its employees more than a full-time regular employee in the same or similar position

Further, even if an employer did not actually use any of this control, the fact that the employer reserved the right to do so in an agreement with a staffing agency could be sufficient to establish a joint employer relationship. 

Browning-Ferris was extremely controversial and criticized by many employers and business groups, such as the U.S. Chamber of Commerce, the National Association of Manufacturers, the International Franchise Association and the American Hotel & Lodging Association. When President Donald Trump took office, he appointed two new Members to the NLRB, giving it a Republican majority. Shortly thereafter, in December 2017, the Board issued Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017), which overruled Browning-Ferris and returned to the former joint employer test requiring direct and immediate control. 

But the fight over joint employment was far from over. Hy-Brand was appealed. In addition, a complaint was filed with the NLRB's Inspector General, alleging that Trump-appointed Board Member William Emanuel should have recused himself from the case because of an ethical conflict. The Inspector General agreed, and the NLRB vacated Hy-Brand, thus reinstating the Browning-Ferris test.

The Rulemaking Process

Rather than wait for a new case to allow them to address Browning-Ferris again, on June 5, 2018, the Board announced that it would engage in rulemaking to address the appropriate joint employer standard. The Board has historically formulated policy primarily through case adjudication. Nevertheless, Section 6 of the NLRA gives it the authority to do so through rulemaking as well, provided it gives notice and the opportunity for public comment. 

In all likelihood, the Board will issue rules that nullify Browning-Ferris and return to the prior joint employer standard requiring direct and immediate control. Indeed, in addressing accusations by Democratic Senators that the outcome of the rulemaking process was predetermined, Chairman Ring noted that he would not "pretend that [he is] devoid of opinions on the subject of the joint-employer standard."  Thus, once the rulemaking process is completed, manufacturing employers should be able to put Browning-Ferris behind them.

 What Should Employers Do Now?

For the time-being, the Browning-Ferris joint employer status is the law. As such, until the Board issues final rules on joint employment, companies should carefully review their current business models and practices to reduce the risk of being found a joint employer under Browning-Ferris. Contracts should be reviewed to eliminate terms that may establish sufficient direct or indirect control to support a joint employer finding under the new standard. When contracting for third-party services, employers should particularly seek to avoid any involvement in hiring or firing decisions and not place any restrictions on wage rates of firms supplying such services. 

When the new rules issue, however—assuming they nullify ­Browning-Ferris—employers will be able to exercise some control over subcontractor hiring, discipline, wage rates and other terms and conditions of employment and without fear of being held responsible for the subcontractor's unfair labor practices or being targeted by unions trying to organize the subcontractor's employees. All employers should monitor the rulemaking process so the appropriate changes can be implemented when the new rules issue.

Molly Kaban is a partner at Hanson Bridgett in San Francisco. She regularly defends employers against allegations of harassment, discrimination, wrongful termination, retaliation, wage-and-hour noncompliance and other labor & employment matters. Molly also negotiates and drafts employment, separation, independent contractor and confidentiality agreements, and works with her clients to develop effective personnel policies. 

Raymond Lynch is a partner at Hanson Bridgett in San Francisco. His practice focuses on employment, labor and benefits litigation with an emphasis on defense of complex disputes. Raymond represented employers in the government , transportation, life sciences, utility, manufacturing, health care and financial industries. Ray's practice also includes litigating, commercial, unfair competition, trade secret and environmental cases.

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