Last week, the National Labor Relations Board (Board) overruled its 2015 decision in Browning-Ferris Indus., 362 NLRB No. 186 (2015), reinstating the former joint employer test that limits the circumstances in which an entity will be found liable for the employment practices of another. In Hy-Brand Indus. Contractors, Ltd., 365 NLRB No. 156 (2017), the Board rejected the Browning-Ferris test that two entities may be joint employers based merely on the right to exercise control over the terms and condition of employment. Instead, Board law will require evidence of the exercise of "direct and immediate" control. Calling the Browning-Ferris standard "a distortion of common law as interpreted by the Board and the courts," the Board returned to a higher standard, and indicated its intention to take a more employer-friendly approach to enforcement of the National Labor Relations Act.

The Browning-Ferris Standard

In Browning-Ferris, the Board lowered the standard for determining that two separate entities are joint-employers. The Board found that a company could be liable as a joint employer with a separate entity, such as a contractor, if the company exercised indirect control, limited control, or even if the company merely maintained the right to exercise some control over a contractor's employees.

Although the company appealed the Board's decision, and Browning-Ferris is still pending before the D.C. Circuit Court of Appeals, the new test required companies across the country to review existing agreements with contractors, and take extreme caution when contracting out work. This decision was the source of significant concern, as the newly-minted test provided little guidance regarding what the Board considered "indirect" or "limited" control. As such, it was expected that the test would be short-lived under the current administration.

The Reinstated Standard

Finding that the Browning-Ferris test exceeds the Board's statutory authority and creates uncertainty under the law, the Board announced that it would "return to the principles governing joint-employer status that existed prior to [Browning-Ferris]." The old test requires proof that one entity had direct and immediate control over a separate entity's employees and that the entity exercised that control. Under this test, separate entities would not be liable as joint employers simply because of indirect control, contractually-reserved control that has not been exercised, or limited control.

Impact for Companies and Employers

The Board's return to the old standard requiring a company to exercise direct and immediate control to be liable as a joint employer is a more rigorous test that should limit the number of cases where the Board finds entities to be joint employers. However, companies must still be careful. Notably, the Board found that the entities in Hy-Brand were joint employers using the reinstated standard. While companies that contract out work need not worry about whether they have retained the right to exercise control over the contractor's employees, they must still consider the degree of control that they exercise.

Among other business relationship types, the Board specifically discussed the potential uncertainty surrounding existing franchising arrangements created by the Browning-Ferris decision. The holding in Hy-Brand reaffirms the Board's past practice of not finding a joint employer relationship between franchisers and franchisees based on the amount of indirect control held by the franchisor.

In addition, the Board's decision to overrule Browning-Ferris is an indication that the new majority on the Board intends to move swiftly in reversing Obama-era decisions and imposing more employer-friendly standards, and take a less aggressive approach to the enforcement of the National Labor Relations Act.