Joint-employer standard left unsettled after NLRB vacates ruling

The National Labor Relations Board recently issued an order vacating its decision in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co., 365 NLRB No. 156 (2017). The decision was vacated in light of the determination by the NLRB's Designated Agency Ethics Office that Member William J. Emanuel should have been disqualified from participating in the proceeding. Emanuel is a former management-side attorney whose prior law firm, Littler Mendelson P.C., represented Leadpoint, a contractor for waste management company Browning-Ferris.

The majority opinion was issued by then-Chairman Philip A. Miscimarra on the last day of his term, and he was joined by the two other Republican members, Emanuel and Marvin E. Kaplan. Members Mark Gaston Pearce and Lauren McFerran, both Democrats, dissented in the case.

The Hy-Brand ruling received sharp criticism from labor unions, such as the Teamsters, which argued that the NLRB was scrapping critical protections for millions of workers. The Teamsters further argued that Emanuel should have recused himself because the NLRB's earlier joint-employer determination in Browning-Ferris, a 3-2 vote in which a Democratic majority prevailed, was still the subject of litigation pending in federal court.

NLRB Inspector General David Berry sent a memo to current board members last month concluding that because the Hy-Brand deliberation was a continuation of the Browning-Ferris deliberative proceedings and involved the application of the Browning-Ferris facts to the law for the Browning-Ferris parties, Emanuel should have been recused from participation in deliberations leading to the decision to overturn Browning-Ferris. Shortly thereafter, on Feb. 26, the board issued the order to vacate Hy-Brand.

The Hy-Brand Joint-Employer Standard

When it issued its Hy-Brand decision last December, the NLRB overruled the joint-employer test it set forth in Browning-Ferris Industries, 362 NLRB No. 186 (2015). In doing so, it returned to the pre-Browning Ferris standard that governed joint-employer liability. In its decision, the majority concluded that the reinstated standard adhered to the common law and was supported by the National Labor Relations Act's policy of promoting stability and predictability in bargaining relationships.

The law in this area is critical because joint-employer relationships impose shared liabilities for labor violations, and shared bargaining duties, upon multiple employers. The ruling in Hy-Brand held that two or more entities would be deemed joint employers under the NLRA only when there was proof that one entity had exercised control over essential employment terms of another entity's employees (rather than merely having reserved the right to exercise control) and had done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. The NLRB held that proof of indirect control, contractually reserved control that had never been exercised, or control that was limited and routine would not be sufficient to establish a joint-employer relationship.

In Hy-Brand, the NLRB noted that whether a company such as a fast-food corporation would be deemed a joint employer of workers employed by another company, such as one of the chain's franchisees, would depend on the degree of control over workers at the other company. Under Hy-Brand, joint liability depended on whether the franchisor actually exercised direct and immediate joint control over essential employment terms in a manner that was not limited and routine.

Interestingly, the holding in Hy-Brand did not relieve the employer in that case, Hy-Brand Industrial Contractors, Ltd., of a finding that it was a joint employer with Brandt Construction Co. The case held that the two entities were joint employers and were jointly and severally liable for the unlawful discharges of seven striking employees.

The Browning-Ferris Joint-Employer Standard

With Hy-Brand vacated, the Browning-Ferris joint-employer test is once again the standard that must be applied to determine whether two entities are joint employers. Browning-Ferris allows a joint-employer finding even when two entities have never exercised joint control over essential terms and conditions of employment. The Browning-Ferris majority held that even when two entities have never exercised joint control over essential terms and conditions of employment, and even when any joint control is not "direct and immediate," the two entities may still be considered joint employers if they merely exercise "reserved" authority, indirect control, or control that is "limited and routine."

Under this Obama-era joint-employer definition, actual control is not needed to establish joint liability. For example, under the Browning-Ferris standard, a franchisor's indirect control or its right to exercise control over a franchisee, even when the franchisor has never exercised that right, can be enough to find that a franchisor and a franchisee are joint employers.

What's Next for Employers?

Given the ambiguity of the test under Browning-Ferris, it is difficult for businesses to determine what their duties and obligations are under the NLRA. The Hy-Brand decision criticized the breadth and vagueness of such a joint-employer test, explaining that it threatens to ensnare a vast range of economic relationships, for example: franchisors, lenders and insurance companies, as well as other companies who negotiate specific quality or product requirements or are concerned about the quality of contracted services.

The decision to vacate Hy-Brand may be only a temporary shift back to the more relaxed standard established in Browning-Ferris. In January, President Donald J. Trump appointed Republican John Ring to serve as the fifth member of the NLRB. If Ring is confirmed, the NLRB will have three Republican and two Democrat members, allowing it to issue a ruling in line with Hy-Brand. However, it may take some time for the NLRB to come across a new case that would allow it to reconsider these issues. During his confirmation hearing on March 1, Ring acknowledged that employers and workers would appreciate action on the issues, and said: "If the issue comes before the board, I would look at the facts with an open mind, consider the past precedents and make a ruling on the case. I want to be careful not to prejudge any case before me." Last week, on March 14, the Committee on Health, Education, Labor and Pensions voted to approve Ring's nomination. The 12-11 vote by the committee sends Ring's nomination to the full Senate for a confirmation vote.

Moreover, on March 1, the NLRB asked the U.S. Court of Appeals for the D.C. Circuit to recall the mandate it issued remanding the case back to the board shortly after the original Hy-Brand decision issued. The D.C. Circuit has yet to rule on the board's motion. If the D.C. Circuit grants the motion, Browning-Ferris' petition for review of the board's decision in Browning-Ferris will again be before the D.C. Circuit.

In the meantime, franchisors must be mindful of their business practices to avoid being held liable for labor law violations committed by franchisees and contractors, and to avoid assuming new collective bargaining obligations. While it is imperative that franchisors control their brands by implementing and enforcing system standards, they should refrain from exercising control in areas that are unnecessary. This includes requiring a franchisee to ensure that applicants meet the franchisor's hiring standards (including drug screens), retaining the right to prohibit the hiring of employees deemed by the franchisor to be ineligible for re-hire, imposing a ceiling on wages paid to franchisee employees, exercising control over the speed of work performed by franchisee employees, or requiring franchisee employees to comply with the franchisor's safety and training procedures. Ultimately, franchisors must strike a balance between exercising sufficient operational control to protect their brands while being cautious not to control the terms and conditions of the franchisees' employees' employment.