On December 14, 2017, just two days before the end of Chairman Philip Miscimarra’s term, the new Republican majority at the National Labor Relations Board continued its shift in labor policy and issued yet another reversal of significant Obama-era precedent. Specifically, the Board issued a 3-2 decision in Hy-Brand Industrial Contractors, Ltd.1 (“Hy-Brand”), which rejected the controversial Browning-Ferris2 decision and returned to its prior test for joint employers.

Browning-Ferris represented a significant departure from decades of Board precedent regarding the standard for determining whether two entities are joint employers. Under Browning-Ferris, two entities would be deemed joint employers based on the mere existence of reserved joint control, indirect control, or control that is limited and routine. This was in stark contrast to the prior standard, which required the putative joint employer to exercise control over essential employment terms, with such control being “direct and immediate.”3 The Browning-Ferris decision drastically increased the universe of potential joint employers and was the subject of intense negative scrutiny, including congressional hearings geared toward overturning the decision.

In Hy-Brand, the Board clearly articulated a return to the standard of requiring proof of the actual exercise of control over essential terms of employment:

[A] finding of joint-employer status shall once again require proof that putative joint employer entities have 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 Hy-Brand decision offers a sigh of relief for employers with both unionized and non-union workforces. For the past two years under Browning-Ferris, employers were compelled to restructure their commercial agreements to attempt to eliminate any potential claim by the NLRB that such language may evidence potential (reserved or indirect) control over a workforce (even when the entity had no direct involvement with the workforce). Some employers chose to make major changes (e.g., requiring separate on-site supervision) and minor changes (e.g., prohibiting temps from wearing company t-shirts or uniforms) to their operations to reduce the risk of a perceived joint-employer relationship and resulting finding. Still other employers chose to eliminate using temporary employment agencies or subcontractors altogether, even though operationally beneficial, to avoid getting caught in the NLRB’s cross-hairs on this issue.

The Hy-Brand Decision

Wasting little time with a newly comprised Republican majority, the Board repudiated Browning-Ferris, referring to it as “a distortion of common law” that was “contrary to the Act,” “ill-advised” and a decision that fostered instability in labor-management relations. The majority also criticized Browning-Ferris for subjecting countless entities to joint-employment obligations, even in the absence of direct and immediate control from the putative joint employer. In short, the decision essentially turned Member Miscimarra’s dissent from Browning-Ferris into the majority decision of the Board.

The Board set forth numerous rationales for rejecting Browning-Ferris, including:

  • Browning-Ferris exceeded the Board’s statutory authority. Browning-Ferris relied upon theories of “economic realities” and “statutory purpose” that improperly extended the National Labor Relations Act’s (“Act”) definitions of “employee” and “employer.” Browning-Ferris also went far beyond the common law it is bound to apply.
  • Browning-Ferris relied upon an incorrect view of our current economy. Browning-Ferris wrongly relied upon the notion that current business conditions are unique to our modern economy. However, subcontracting, outsourcing and other temporary employment have existed since before the passage of the Act.
  • Browning-Ferris was based upon a misreading of Board precedent. Browning-Ferris purported to return to the “traditional” joint-employer standard that existed before two 1984 decisions, TLI and Laerco. However, in cherry-picking the precedent it relied upon, the Browning-Ferris majority neglected decisions where no joint-employer relationship was found, despite the existence of indirect control.
  • The Browning-Ferris test was an unpredictable, ill-defined standard that imposed “unprecedented” bargaining obligations, fostered labor instability, and created unresolvable legal uncertainty. “Our fundamental disagreement with the Browning-Ferris test is not that it treats indicia of indirect, and even potential, control to be probative of joint employer status, but that it makes such indicia potentially dispositive without any evidence of direct control in even a single area. Under the common law, in our view, evidence of indirect control or contractually-reserved authority is probative only to the extent that it supplements and reinforces evidence of direct control.” Because Browning-Ferris gave employers essentially no guidance, the Board could find joint-employer status because of “reserved” or “indirect” control of virtually any term or condition of employment.

Given these concerns, the Hy-Brand majority returned to a more concrete and defined joint-employer test, which focuses on whether an alleged joint employer “meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.”

The basis of the [joint-employer] finding is simply that one employer while contracting in good faith with an otherwise independent company, has retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by the other employer. Thus, the ‘joint employer’ concept recognizes that the business entities involved are in fact separate but that they share or co-determine those matters governing the essential terms and conditions of employment.

Upon announcing the reversion to the Board’s prior test, the Hy-Brand majority also announced that this joint-employer standard would be applied retroactively to the case in front of it (as well as all other pending cases). The Board then found the record established that the two entities at issue, Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co., were joint employers because both entities exercised joint, direct and immediate control over employees.

Practical Implications

Without a doubt, the Hy-Brand decision is significant for those entities in a franchisor-franchisee relationship, businesses that use temporary workers to supplement their workforces or a means of onboarding through a “temp to perm” process, contractors that subcontract portions of their work on jobsites, and organizations that engage a third party to provide labor or perform a task.

Despite the Hy-Brand decision, the future of the joint-employer analysis is not set in stone. The Hy-Brand decision may be appealed to the court of appeals. Also, the appeal of Browning-Ferris remains pending before the U.S. District Court for the D.C. Circuit, although the NLRB’s new General Counsel may file a motion to remand the case to the Board in light of the Hy-Brand decision. Moreover, the Save Local Business Act, which passed the U.S. House of Representatives on November 7, 2017, seeks to amend the NLRA and Fair Labor Standards Act to narrow the joint-employer relationship to only those situations where “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.”

While employers may breathe a sigh of relief in light of Hy-Brand, it remains prudent to assess how best to engage or contract with other businesses to ensure against a joint-employer finding. Oftentimes, businesses properly establish written agreements and protocols sufficient to create an arms-length relationship with separate businesses, only to find that a local management team responsible for implementation of the relationship blurs the lines. With the shift in the analysis back to the actual exercise of control, it is more important than ever to ensure third-party relationships do not lend themselves to a joint-employer finding. For strategy discussions regarding the above, employers should consult experienced labor counsel.