Bill will ease joint employer rules

On July 27, House Republicans unveiled a bill, the Save Local Business Act (H.R. 3441), that would amend two labor and employment statutes to clarify when an entity can be deemed a “joint employer.” The prior administration, and the courts, took an increasingly expansive and overreaching view of joint employment under both the National Labor Relations Act (NLRA) and the federal Fair Labor Standards Act (FLSA). This movement gained momentum after the National Labor Relations Board issued Browning-Ferris Industries of California, Inc., which upended decades of established law by creating a new standard for determining when an entity can be deemed a co-employer of another business’ employees under the NLRA. The standard shifted from whether the purported joint employer exercised “direct and immediate” control over the other entity’s employees to a much looser “indirect” control standard broad enough to cover virtually any business relationship.

Federal courts have also applied a wide variety of multi-factor tests to determine when companies are jointly liable for another business’ practices under the FLSA. In January 2016, the Department of Labor issued an Administrator’s Interpretation that established new standards for determining joint employment under the FLSA. In this guidance, the DOL called for an “expansive” interpretation of joint employment, and for the first time differentiated between “horizontal” and “vertical” joint employment. The new secretary of labor, Alexander Acosta, withdrew this interpretation last month. However, the impact remains. The 4th U.S. Circuit Court of Appeals recently adopted a new expansive joint employer test, and rejected a long-standing test accepted by most circuits, based on this same DOL Interpretation.

In response to these changing standards, the Save Local Business Act would amend the definitions of the term “employer,” as used in the NLRA and the FLSA, to create a uniform standard reinstituting the long-standing requirement that the company directly, actually and immediately control workers’ terms and conditions of employment before joint liability attaches. At a hearing earlier this month before the U.S. House Committee on Education and the Workforce, Chairwoman Virginia Foxx (R-N.C.) described the bill, sponsored by Reps. Bradley Byrne (R-Ala.) and Henry Cuellar (D-Texas), as “short and to the point.” At less than two pages, the bill simply states that a person may constitute a joint employer as to an employee “only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.” Such significant control would include “hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, and administering employee discipline.” The bill emphasizes that minimal, routine supervision is insufficient to render joint employment.

This bill also seeks to return the FLSA to its traditional and long-standing framework by incorporating factors reflecting those delineated in the original multifactor test instituted over 30 years ago under the FLSA.

During the House Committee hearing earlier this month, numerous witnesses testified about how the confusion over the joint employer standard has stifled the expansion plans of small business owners. According to those witnesses, as well as small business owners speaking at the July 27 press conference debuting the legislation, the expanded joint employer standard forces businesses to rein in their franchising plans because they are not sure how to proceed in balancing those relationships without violating the law and want to avoid the legal costs associated with figuring it out.

Chairwoman Foxx anticipates significant bipartisan support for the bill in the House. And while the proposal’s sponsors are confident that President Donald Trump would sign the bill should it reach the White House, it remains unclear what the Senate might do with the bill if it clears the House.

Proponents tout the Save Local Business Act as a commonsense, permanent solution to the problems associated with the Browning-Ferris standard and the other restrictive joint employment standards that evolved under the Obama administration. Addressing the confusion through legislation is critical to prevent future uncertainty because it takes this important issue out of the hands of federal regulators whose priorities may shift with each administration. This legislation supports businesses and ensures a uniform standard for determining joint-employment liability under both statutes. Reversing the indirect control tests applied by the Obama administration and the courts, and returning to a bright-line standard requiring direct, actual and immediate control, will create certainty and predictability, which would ensure the continuation of beneficial business relationships like franchising, subcontracting, and temporary employment.

Both authors provide counsel to the International Franchise Association, which is a member of the coalition crafting and advocating for the legislation.