Why it matters

Making good on its promise, the National Labor Relations Board (NLRB or Board) published a notice of proposed rulemaking (NPRM) to establish a new joint employer standard. The past few years have seen significant changes in the standard, and the NLRB opted to promulgate a rule in an effort to provide certainty for employers and employees alike. Pursuant to the proposed rule, an employer may be found to be a joint employer of another employer’s employee only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint employer relationship, the NLRB said. “I look forward to receiving the public’s comments and to working with my colleagues to promulgate a final rule that clarifies the joint employer standard in a way that promotes meaningful collective bargaining and advances the purposes of the Act,” NLRB Chair John F. Ring said in a statement. Board member Lauren McFerran dissented from the proposal. Comments will be accepted on the NPRM until November 13.

Detailed discussion

For several decades, the National Labor Relations Board (NLRB or Board) followed a single standard in evaluating the scope of joint employer liability. But in 2015, the Board adopted a controversial new standard in the Browning-Ferris Industries of California, Inc., decision.

In that case, 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.”

The employer appealed the decision to the U.S. Court of Appeals, D.C. Circuit. While the case was pending, however, things got more complicated with the subsequent Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co. case. There, an administrative law judge applied the Browning-Ferris standard to find that the two entities were joint employers for purposes of the National Labor Relations Act (NLRA) when they terminated a total of seven workers.

But when the employers appealed to the NLRB, the Board—featuring new members courtesy of President Donald Trump—took the opportunity to throw out the Browning-Ferris standard and establish a new test.

Although the decision was hailed by employers, 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. After an investigation by the NLRB’s Inspector General determined that Emanuel should have recused himself, the NLRB vacated its decision in Hy-Brand.

Earlier this year, the Board suggested that formal rulemaking might be the best solution for the continuing confusion over the standard and followed through with a notice of proposed rulemaking (NPRM) published in the Federal Register in September.

Rulemaking is desirable for several reasons, the Board said. Public comment on the issue will be beneficial for the NLRB, and establishing a standard will “foster predictability and consistency” regarding determinations of joint employer status, which has significant consequences for businesses, unions and employees alike.

“Under the proposed rule, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction,” according to the NPRM. “A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.”

This proposal reflects the Board’s view “that the Act’s purposes of promoting collective bargaining and minimizing industrial strife are best served by a joint employer doctrine that imposes bargaining obligations on putative joint employers that have actually played an active role in establishing essential terms and conditions of employment,” the Board added.

The proposed rule is consistent with the common law of joint employer relationships as well as Supreme Court precedent and that of lower courts, the NLRB said, particularly the need for “direct and immediate” control.

“Accordingly, under the proposed rule, there must exist evidence of direct and immediate control before a joint employer relationship can be found. Moreover, it will be insufficient to establish joint employer status where the degree of a putative joint employer’s control is too limited in scope (perhaps affecting a single essential working condition and/or exercised rarely during the putative joint employer’s relationship with the undisputed employer).”

For further illustration, the NPRM includes examples. Example 10 states: “Business contract between Company and a Contractor reserves a right [for] Company to discipline the Contractor’s employees for misconduct or poor performance. Company has never actually exercised its authority under this provision. Company has not exercised direct and immediate control over the Contractor’s employees’ terms and conditions of employment.”

Alternatively, Example 6 provides: “Under the terms of a franchise agreement, Franchisor and Franchisee agree to the particular health insurance plan and 401(k) plan that the Franchisee must make available to its workers. Franchisor has exercised direct and immediate control over essential employment terms and conditions of Franchisee’s employees.”

Board member Lauren McFerran filed a statement dissenting from the NPRM. No evidence of “continuing uncertainty” because of the fluctuating standard was presented to the Board, she said, and the best way to end any purported uncertainty would be “to adhere to existing law, not upend it.”

McFerran also expressed concern that the Board’s efforts may only further complicate the situation, as the Browning-Ferris decision remains pending before the D.C. Circuit. If the federal appellate panel were to uphold the Browning-Ferris standard but the Board were to reject it via rulemaking, then the Board’s final rule would be premised on a legal error, she wrote.

To read the NPRM, click here.