On September 14, 2018, the National Labor Relations Board (NLRB) published a notice of proposed rulemaking (NPRM) in the Federal Register addressing how it will determine whether an employer is a joint employer of another entity’s employees. The NPRM presents the potential for a welcome change for employers, many of which have struggled with the strict joint employment standard imposed over the last few years. Here are answers to some frequently asked questions about the NPRM and its practical impacts on employers below.
What impact would the proposed rule have on employers generally?
It would provide certainty and clarity. Browning-Ferris Industries of California, Inc. d/b/a Newby Island Recyclery (August 27, 2015) articulated a new standard, allowing mere potential or indirect control to make an employer a joint employer of another’s employees. The decision did not provide any guidance as to how the Board would apply the new standard, leaving unions, employers, and employees with tremendous uncertainty as to what entity is actually the employer of any particular group of employees. The NPRM would return the Board to a clear standard rooted in decades of Board jurisprudence.
What impact would the proposed rule have on the franchise community?
The historical standard (e.g., the standard before Browning-Ferris) that the Board would essentially be readopting under the NPRM is not one that can be legitimately applied in most franchisor-franchisee relationships to deem the franchisor the joint employer of any particular franchisee’s employees. Moreover, the NPRM proposes one additional clarification of the historical standard by expressly requiring that the “direct and immediate” control one business exercises over another’s employees be “substantial” to be considered joint employment. Although that is consistent with the Board’s decades of jurisprudence applying the historical standard, it was not a term expressly applied by the Board previously. The use of the term “substantial” would preclude any joint employer finding in franchise operations—unless the franchisor is exercising substantial direct and immediate control over essential terms and conditions of employment, which is not typical in franchisor-franchisee relationships.
Would the proposed rule have any impact on gig economy employees and employers?
The NPRM will not have a direct impact on the gig economy because the 150 million individuals who make up that segment of the workforce generally work as independent contractors, not as employees. The NPRM does not directly impact the traditional standards under which we evaluate whether any purported independent contractor is correctly designated as such or is an employee of the entity to which the individual is providing services.
That said, the standard the NPRM proposes, which requires “substantial” control by one business over another’s employees to be deemed a joint employer, makes clear the Board’s understanding that the employer-employee relationship requires substantial direct and immediate control. That standard could be relied upon by entities in opposing efforts by unions to unionize their independent contractors and to rebut the unions’ argument that these individuals are actually employees and not arms-length contracting parties. The Obama Board tried to apply an “economic realities” approach (which focuses on potential and indirect control) in deeming entities to be employers rather than applying the standard mandated by law that, like the joint employer standard articulated in the NPRM, requires the contracting party to exercise control in a manner that, in essence, is direct, immediate, and substantial.
How might the proposed rule impact collective bargaining?
The NPRM could further the National Labor Relations Act’s purpose of encouraging stable collective bargaining by creating certainty, without which neither employers nor employees can reasonably engage in collective bargaining because they don’t know if the actual employer (i.e., the “joint employer” entity) is the party negotiating.
Additionally, the NPRM could significantly increase the likelihood of success in collective bargaining. Getting employers and unions to agree on all of the terms of a collective bargaining contract is always challenging, particularly when it is the first contract between the parties. Under the Browning-Ferris standard, the Board undermined that fundamental goal by allowing unions to force independent businesses—which often have interests in conflict with those of unions—into the role of a single joint employer, thus requiring that both companies agree on all terms of the collective bargaining agreement or there would be no agreement with the union.