Why it matters

In a blow to employers, the National Labor Relations Board (NLRB) vacated its decision in Hy-Brand Industrial Contractors, Ltd., where the majority had reversed the “joint employer” standard adopted in Browning-Ferris Industries of California, Inc. In 2015, the NLRB adopted the Browning-Ferris standard that even when two entities have never exercised joint control over the essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control, or based on indirect control or control that is “limited and routine.” An administrative law judge applied the standard in a case involving Hy-Brand and Brandt Construction Co. and found the two entities were joint employers for purposes of the National Labor Relations Act when they terminated a total of seven workers. When the employer appealed to the NLRB, the board took the opportunity to toss Browning-Ferris and establish a new test. However, after the NLRB Inspector General determined that one of the new NLRB members on the Hy-Brand panel was disqualified from participating in the case and should have recused himself from the proceeding, the NLRB vacated its decision, leaving Browning-Ferris in place—at least for now.

Detailed discussion

In 2015, the National Labor Relations Board (NLRB) adopted a controversial new standard to determine the scope of joint employer liability in Browning-Ferris Industries of California, Inc. The board held that even when two entities have never exercised joint control over the essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control, or based on indirect control or control that is “limited and routine.”

Applying that standard to a case involving Hy-Brand Industrial Contractors and Brandt Construction Co., an administrative law judge determined the two entities were joint employers for purposes of the National Labor Relations Act when they terminated a total of seven workers.

When the employers appealed to the NLRB, it—complete with new members courtesy of President Donald J. Trump—took the opportunity to establish a new test.

“We find that the Browning-Ferris standard is a distortion of common law as interpreted by the Board and the courts, it is contrary to the Act, it is ill-advised as a matter of policy, and its application would prevent the Board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations,” the Board majority wrote. “Accordingly, we overrule Browning-Ferris and return to the principles governing joint employer status that existed prior to that decision.”

The NLRB found five major problems with Browning-Ferris: (i) it exceeded the NLRB’s statutory authority; (ii) it based its rationale on an incorrect position that present conditions are unique to our modern economy; (iii) it effectively permitted the NLRB to rewrite the principles of agency; (iv) it abandoned a long-standing test that provided certainty and stability and replaced it with a vague and ill-defined standard; and (v) it applied the wrong remedy to a perceived inequality of bargaining leverage in collective bargaining relationships.

In overruling Browning-Ferris, the NLRB reinstated the prior joint employer standard for pending cases, with retroactive application.

“Thus, a finding of joint employer status requires proof that the alleged joint employer entities have actually exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint employer status will not result from control that is ‘limited and routine,’” the NLRB wrote.

Applying the new test to the parties in the case, the NLRB found Brandt and Hy-Brand were still joint employers. “Substantial evidence supports a finding that the two entities exercised joint control over essential employment terms involving Brandt and Hy-Brand employees, the control was direct and immediate, and it was not limited and routine,” the NLRB said.

The decision was hailed by employers, but the victory was short-lived.

In a motion for reconsideration, for recusal and to strike, the charging parties requested that the NLRB vacate its decision and that board member William J. Emanuel recuse himself. The NLRB’s Inspector General launched an investigation into whether Emanuel was required to recuse himself because his former law firm represented Leadpoint, another entity involved in the Browning-Ferris case.

Given this conclusion, the NLRB vacated its decision. “After careful consideration … we have decided to grant the Charging Parties’ motion in part and to vacate and set aside the Board’s December 14, 2017 Decision and Order,” the remaining three members of the NLRB wrote. “Because we vacate the Board’s earlier Decision and Order, the overruling of the Browning-Ferris decision is of no force or effect.”

To read the memo from the Inspector General, click here.

To read the order in Hy-Brand Industrial Contractors, Ltd., click here.