NLRB roles back Obama-era joint employer definition

The specificity with which the National Labor Relations Board rolled back an Obama-era definition of "joint employer" under the National Labor Relations Act arguably gives companies more protection than they had before, employer attorneys said Tuesday.

The final rule issued by the NLRB states a company only qualifies as a joint employer of another business' employees if the former possesses and exercises "substantial direct and immediate control over one or more essential terms and conditions of employment of another employer's employees."

This had more or less been the criteria for a joint employer for decades until 2015, when the board changed the definition via a decision involving waste management company Browning-Ferris Industries The decision held that a company qualified as a joint employer if its control over another business's employees "was merely indirect, limited and routine, or contractually reserved but never exercised."

The criteria laid out in Tuesday's final rule echoes the pre-2015 definition of a joint employer, said David Amaya, a partner at Fisher & Phillips LLP, who noted one important addition: the control that an employer exercises over another business's employees has to be "substantial."

"The rule actually went through what that means," Amaya said. "For example, with wages, the company would need to determine the wage rates and the salaries of the employees for that to be a factor in favor of joint employer. ... When you're talking about the hours of work, just establishing the company's operating hours, just establishing the services is not going to be enough. The company would have to determine the work schedules for the other company's employees."

"They've gone into these specifics," Amaya said of the NLRB. "I think it could be argued that it is going to be even more difficult to prove joint employer status now than even under the pre-2015 rule."

Matthew Fontana, an associate in the labor and employment group at Faegre Drinker Biddle & Reath LLP, framed the board's new definition another way, saying it provides more "certitude" to both employers and employees about their respective positions. Employers will have more clarity about who qualifies as their employees, he said, and employees represented by unions will know which companies they have a bargaining relationship with.

A definition based upon "indirect control," he said, "necessarily is a vaguer and more ambiguous standard."

The NLRB's rule will apply across the nation after it takes effect on April 27, but Fontana said it could have special consequences in California.

"There's a lot of organizing going on in the franchisee space -- think of McDonald's," he said. "There's a lot of momentum with service workers, and I think this decision does have an impact because it may make it, in some circumstances, harder [to organize] under the new test."

Amaya said compared to other parts of the nation, however, California would likely feel less of an impact.

"I think California is already impacted by so many employment regulations ... that the effect may not be felt quite as much as it might be in other states," he said.

Beyond the consequences of the NLRB's new definition, Fontana said it's notable that the board arrived at the standard through rulemaking, instead of via a decision. In a fact sheet issued Tuesday, the board said rulemaking allowed it to create a definition without being limited to "the specific facts of a particular case," and to "provide a means to give this complex, nuanced, and vitally important issue the kind of comprehensive and detailed explication it deserves and to which the public is entitled."

"The board is allowed to engage in rulemaking so long as you give people the requisite notice and people have the right to comment on the rule and so forth," said Robert F. Millman, a shareholder at Littler Mendelson PC. The board noted it received nearly 29,000 comments on the changes it proposed to the Obama-era joint employer standard in 2018.

"People forget one important thing," Millman added. "In the real world, businesses need to operate their businesses, and they need to know what the rules are and are not."

In January, the U.S. Department of Labor introduced a four-pronged test that companies have to pass in order to qualify as joint employers. The Department of Labor's rule takes effect March 16.