By the Labor & Employment group, Stoll Keenon Ogden PLLC
The joint-employer standard of the National Labor Relations Board (NLRB) has recently been in a state of flux, making it difficult for employers to understand their potential obligations and liabilities under the law. Generally, the joint-employer standard determines whether one business is a joint employer of another entity’s employees by evaluating several factors related to employee control.
The joint-employer standard is important to businesses large and small because it determines whether a business is responsible for the labor law violations and collective bargaining obligations of its affiliates, temp agencies, contractors and franchisees.
In September, the NLRB issued a notice of proposed rulemaking that would alter the broad joint-employer standard established during the Obama administration and provide much-needed guidance for employers dealing with actual or potential joint-employer liability. The proposed rulemaking would bring clarity to businesses that contract with other businesses for labor or that have intertwined employee relationships with other businesses.
For a half-century prior to 2015, the NLRB had a bright-line rule that joint-employer status would apply only to an employer that exercised a significant degree of direct and immediate control over another employer’s employees’ essential terms and conditions of employment. This rule was simple to apply: If one business had the authority to hire and fire the other business’s employees, it had direct and immediate control sufficient to be considered a joint employer.
In 2015, the NLRB broadened the standard so that a business could be considered a joint employer if: (1) it possessed the potential right to control the terms of employment (even if that right went unexercised); or (2) it exercised indirect control over the terms of employment. The NLRB also expanded the definition of “terms and conditions of employment” to include wages and hours. In contrast to the former standard, this is not a bright-line rule. Instead, it requires a case-by-case analysis of the employment relationship, causing confusion and requiring expensive litigation for employers.
In late 2017, after the change in presidential administrations, the NLRB overturned its 2015 decision and briefly returned to the pre-2015 joint-employer standard. In early 2018, the NLRB again reversed course, holding that its 2017 decision was invalid because of one Board member’s conflict of interest. As a result, the broader joint-employer standard adopted under the Obama administration in 2015 was reinstated.
The current joint-employer standard has resulted in uncertainty over which workplace policies may trigger joint-employer status. Without a bright-line rule in place, many employers are left to wonder if they may be liable for the labor law violations or collective bargaining obligations of other entities. This fear is not unfounded. Under the current rule, for example, a franchisor is more likely to be held responsible for a franchisee’s employment-based legal disputes.
The proposed new rule
This change would mark a return to the bright-line, joint-employer standard. Thus, an employer may be found to be a joint employer of another employer’s employees 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. Essentially, the current, broader standard of indirect or potential control would not be sufficient to establish a joint-employer relationship under the proposed new rule.
While this is just the beginning of the rulemaking process—and the broader joint-employer standard remains in place—businesses are considering it a step in the right direction in terms of clarity and lessening employers’ potential liabilities and collective bargaining obligations.
What’s next? A 60-day period of public comment, with the potential for public hearings, is upon us. While it is difficult to predict how long the entire rulemaking process will last, it could take months—if not years—for a rule to be finalized.
If you have questions or concerns about how joint-employer status may impact you or your organization, Stoll Keenon Ogden PLLC’s Labor, Employment and Employee Benefits Practice is available to assist and guide you through any potential issues.