Review NLRB’s proposed rule to clarify its joint-employer standard

Legal issues surrounding joint-employer status have been swirling around the National Labor Relations Board for years. Generally, case law has dictated what joint-employer standard would apply and how it would apply. However, on Sept. 14, the NLRB proposed a rule to clarify the board's position on this legal issue, a proposal which has led to much discussion and debate, including here in California. Should an NLRB rule replace case law when it comes to determining the joint-employer standard? Will the board's proposed rule promote consistency? Will it promote meaningful collective bargaining?

The Proposed Rule

Under the proposed regulation, California and other employers may be found to be a joint employer of another employer's employees only if they possess and exercise substantial, direct and immediate control over the essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction and have done so in a manner that is not limited and routine.

In its press release announcing the proposed rule, the board indicated that rulemaking in this important area of law would foster predictability, consistency and stability in the determination of joint-employer status. It also set out its differences with the Browning-Ferris opinion by specifically noting that the board's intent is best supported by a joint-employer doctrine that does not draw third parties who have not played an active role in deciding wages, benefits or other essential terms and conditions of employment, into a collective-bargaining relationship for another employers employees. Rather, it would be more useful to have the necessary parties, the ones who have control, at the bargaining table.

Interestingly, even with all the volatility of recent years, the National Labor Relations Act does not contain the term "joint employer." For the most part, prior decisions discussed control and were fairly consistent that evidence of indirect control was typically insufficient to prove that one company was the joint employer of another employer's workers. Even direct and immediate supervision of another's employees was insufficient to establish joint-employer status where such supervision was limited and routine, which they considered to be directing what work to perform as well as where and when to perform the work but not how to perform it. Flagstaff Medical Center, Inc., 357 NLRB 659, 667 (2011); AM Property Holding Corp., 350 NLRB 998, 1001 (2007), enfd. in relevant part sub nom.

The board has discretion to engage in substantive rulemaking and in this instance it claims this rule is desirable for several reasons. First, the board contends that numerous business relationships will benefit from the public comment on this issue (franchisor-franchisee; lessor-lessee; parent-subsidiary; contractor-consumer to name a few). Second, it allows the board to clarify what constitutes the actual exercise of substantial direct and immediate control by use of hypotheticals. Lastly, it will alleviate the uncertainty for employers, unions and employees to plan their affairs.

The current standard is still that of the Browning-Ferris case from 2015, which remains on appeal.

The History

In August 2015, the Browning-Ferris decision made headlines as it significantly increased the joint-employer standard. Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015). This controversial 3-2 decision involved a recycling facility with only 60 employees who contracted with a staffing company who supplied contract employees to work inside the recycling center. It was ultimately concluded that the recycling company and the staffing company were joint employers. In support of their decision, the board analyzed "direct" control and "indirect" control. The majority felt that temporary and contingent employment relationships were on the rise and the joint-employer standard needed to broaden.

If a joint-employer relationship exists, the two employers legally share the ability to govern the workers terms and conditions of employment. This decision was argued to be harmful by franchisees and small business owners particularly who noted they would have increased financial liability regulations. The decision was criticized as being too broad and creating unduly burdensome and unreasonable liability on employers in addition to creating the potential for an entity with no significant control to be involved with collective bargaining.

Prior to the Browning-Ferris decision, it was required that employers not only possess control over a worker to be considered one of that workers' employers, they also had to exercise that control.

Post Browning-Ferris

In December 2017, the board issued its decision in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017). In this case, the board ruled that, for all pending and future cases, two or more entities would only be deemed joint employers under the NLRA if there was proof that one entity actually had exercised control over essential employment terms of another business' employees. This invalidated the Browning-Ferris decision as it was not merely having reserved the right to exercise control. The Hy-Brand case also added that the control needed to be done directly and immediately rather than indirectly and in a manner that was not limited and routine. It also set out that proof of indirect control, contractually reserved control that had never been exercised or control that was limited and routine would be insufficient to establish a joint-employer relationship.

By adding direct and immediate control to the joint-employer analysis, it was believed that employers would be able to make more educated and informed decisions on how they enter into relationships and/or contracts with vendors, subcontractors, and/or suppliers. An employer would be able to assess its likelihood of joint-employer status and understand and acknowledge any liability risks it may have.

The Hy-Brand case was vacated on Feb. 26 when it was discovered out that one of the deciding members should not have participated in the decision due to his relationship with some of the employees in the Browning-Ferris case. Once Hy-Brand was vacated, the board technically returned to the Browning-Ferris standard.

As the proposed rule illustrates, the Hy-Brand decision is being reincarnated, in essence, via rulemaking procedure.

Where Do We Go from Here?

Since the Browning-Ferris case is still on appeal and it is unknown what, or when, the appellate court will decide, the board may be attempting to codify the joint-employer standard via the rulemaking process in case the Browning-Ferris case is upheld. The board has been quite clear that they contend a more direct and concise rule will foster predictability, consistency and stability in addition to promoting meaningful collective bargaining and labor management stability.

The difference between the two cases or Browning-Ferris versus the new proposed rule is basically direct and immediate control versus indirect, limited and routine control. It is evident that the board is trying to limit bargaining obligations solely on joint employers who have actually played an active role in establishing essential terms and conditions of employment.

So, the question everyone is asking is "what constitutes direct and immediate control?" Pursuant to the NLRB fact sheet, direct and immediate control pertains to the essential terms and conditions of employment such as hiring, firing, discipline and supervision and direction. It may include instructions as to how to perform work, setting wages and deciding benefits. The board has also included twelve hypotheticals as to when joint-employer status would attach. The first six are detailed below:

1. Company A supplies labor to Company B. The business contract between Company A and Company B is a "cost plus" arrangement that establishes a maximum reimbursable labor expense while leaving Company A free to set the wages and benefits of its employees as it sees fit. Company B does not possess and has not exercised direct and immediate control over the employees' wage rates and benefits.

2. Company A supplies labor to Company B. The business contract between Company A and Company B establishes the wage rate that Company A must pay to its employees, leaving A without discretion to depart from the contractual rate. Company B has possessed and exercised direct and immediate control over the employees' wage rates.

3. Company A supplies line workers and first-line supervisors to Company B at B's manufacturing plant. On-site managers employed by Company B regularly complain to A's supervisors about defective products coming off the assembly line. In response to those complaints and to remedy the deficiencies, Company A's supervisors decide to reassign employees and switch the order in which several tasks are performed. Company B has not exercised direct and immediate control over Company A's lineworkers' essential terms and conditions of employment.

4. Company A supplies line workers and first-line supervisors to Company B at B's manufacturing plant. Company B also employs supervisors on site who regularly require the Company A supervisors to relay detailed supervisory instructions regarding how employees are to perform their work. As required, Company A supervisors relay those instructions to the line workers. Company B possesses and exercises direct and immediate 58 control over Company A's line workers. The fact that Company B conveys its supervisory commands through Company A's supervisors rather than directly to Company A's line workers fails to negate the direct and immediate supervisory control.

5. Under the terms of a franchise agreement, Franchisor requires Franchisee to operate Franchisee's store between the hours of 6:00 a.m. and 11:00 p.m. Franchisor does not participate in individual scheduling assignments or preclude Franchisee from selecting shift durations. Franchisor has not exercised direct and immediate control over essential terms and conditions of employment of Franchisee's employees.

6. Under the terms of a franchise agreement, Franchisor and Franchisee agree to the particular health insurance plan and 401(k) plan that the Franchisee must make available to its workers. Franchisor has exercised direct and immediate control over essential employment terms and conditions of Franchisee's employees.

Conclusion

Overall, the proposed rule is likely to garner the support of many California employers, small business owners and franchise owners. But, the discussion and debate is not over. Once the deadline for comments has passed, we all eagerly await the board's next press release on the joint-employer standard. This issue is certainly not over and one that will likely be in the legal news for some time to come.

The board is asking for opinions on the topic. They particularly request input from employees, unions and employers regarding how the extent of control possessed or exercised by employers affect labor disputes, how the extent of control possessed or exercise by the employers affect organizing in representing such workplaces for the purposes of collective bargaining and how the legal requirements affect managing such workplaces. Anyone who wishes to submit a comment has until Nov. 13.