THE NLRB’S DESIGNS TO RE-DEFINE JOINT EMPLOYER
Are you a franchisor? Do you have contractors? Do you use a staffing agency? Do you outsource functions (food service, cleaning, security, etc.)? Do you have affiliate corporate entities you established to operate separately? Do you have a vertically integrated operation? If you answered any single one of these questions affirmatively, the National Labor Relations Board is gunning for you.
As those entities already in these situations probably are aware, the NLRB has recently expressed a renewed interest in re-defining current standards for determining joint employer liability. Put another way, this means that the Board is trying to make it easier to find employers responsible (and liable) for another employer’s employees.
What exactly is a joint employer? Simply stated, a joint employer relationship exists where two separate employer entities actually share or meaningfully affect control of the employment relationship with regard to terms and conditions of employment. This includes joint involvement in things like hiring, firing, discipline, supervision, direction, etc. Joint employers acting in this manner have long been jointly liable for violations of the National Labor Relations Act. In fact, this standard for determining joint employment has been in existence for over 30 years and has been endorsed by federal courts and Congress.
On May 14, 2014, the NLRB first indicated that it was prepared to revisit this standard by requesting briefing from interested parties on a case pending before it, Browning-Ferris, Inc. In that case, the Teamsters claimed that the company was a joint employer with staffing agency employees it uses. Specifically, the NLRB asked whether it should change its current standard – and possibly even adopt a new (and more relaxed) standard.
The NLRB’s brief submitted in Browning-Ferris proposed making a joint employer determination based on the totality of the circumstances by examining direct, indirect, and “potential” control of one employer over the employees of another employer. Specifically, the NLRB would look at the “economic realities or dependence” of the employers as opposed to the immediate, direct control the current test examines. Among the variables cited by the NLRB to be considered include tracking sales data, inventory and labor costs, projections of labor needs, involvement in employee work schedules, involvement in setting wages and wage reviews, involvement in the application and screening process, and even productivity.
Just as the ink dried on the Browning-Ferris brief invitation, the General Counsel (GC) for the NLRB announced on July 29, 2014 that it intended to issue complaints against McDonald’s USA in 43 pending cases in which it was alleged that McDonald’s was a joint employer of the franchisee’s employees. That is, McDonald’s was going to be named as a joint employer because it allegedly exerts too much control over day-to-day operations of its franchisees. Now, the GC’s determination to issue a complaint has no legally binding affect, and absent settlement, the result will be determined through litigation. Clearly, however, by issuing the Browning-Ferris invitation and by issuing the McDonald’s complaints, the direction the NLRB would like to go would seem to make franchisors (and other employers) responsible and more frequently liable for franchisee (or contractor, staffing agency, or other entity) employees.
Why is the Board so interested in joint employer status all of a sudden? There are a number of reasons why. First, as the actions of the Board in recent years appear to make plain, the NLRB has been trying to expand its jurisdiction. Currently, unions represent 11.3% of the workforce and only 6.7% of the private sector. Consider, for example, the Board’s proposed election rules, its decision about college athletes at Northwestern University, and its continued focus on work rules in non-union settings. All would increase those percentages. Second, the unions’ (or union-supported work centers’) drive to increase the minimum wage centers heavily on the fast food industry. Historically, the major chains have been insulated from that effort because the franchisee has generally been recognized as the employer, but changing the joint employer test allows the unions to exert pressure on a more recognized corporate entity. This, in turn, could open the door to larger scale organizing by unions.
The approach the NLRB has taken in this area is something all employers should be paying attention to. This is particularly true since other agencies – like the Department of Labor, to name just one example – may likewise consider trying to pursue a lessened standard as applied to the laws they enforce. Beyond just paying attention to what’s happening on this front, it’s probably a good idea for employers who may be at risk to review existing contracts to ensure that they properly and effectively describe the business relationship, and re-examine the day-to-day realities of the relationship as it relates to the level of separation between the entities.
Unfortunately, this area of the law is in flux right now. Visit the Employment Essentials blog often to stay on top of any additional developments in this area.