The National Labor Relations Board has announced publication of a proposed rule that will establish a new and far narrower standard for determining whether an employer can be held to be the joint-employer of another employer’s employees. The rule described in the Notice of Proposed Rulemaking published in the Federal Register on September 14, 2018, will, once effective essentially discard the Board’s test adopted in Browning-Ferris Industries (“Browning-Ferris”) during the Obama Administration, which substantially reduced the burden to establish that separate employers were joint-employers and as such could be obligated to bargain together and be responsible for one another’s unfair labor practices.

The Proposed New Standard

Under the proposed new rule, the Board will essentially return to the standard that it had followed from 1984 until 2015. As the Board explained when it announced the proposed new rule

Under the proposed rule, 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. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.

Under Browning-Ferris, the Board held that indirect influence and the ability to influence terms and conditions, regardless of whether exercised, could result in an employer being held to be the joint-employer of a second employer’s employees.

As a practical matter, the new standard should make it much more difficult to establish that a company is a joint-employer of a supplier or other company’s employees. The new standard will mean that a party claiming joint-employer status to exist will need to demonstrate with evidence that the putative joint-employer doesn’t just have a theoretical right to influence the other employer’s employees’ terms and conditions but that it has actually exercised that right in a substantial, direct and immediate manner.

This new standard is likely to make it much more difficult for unions to successfully claim that franchisors are joint-employers with their franchisees, and that companies are joint-employers of personnel employed by their contractors and contract suppliers of labor such as leasing and temporary agencies.

The New Standard Marks a Return to that Announced in Hy-Brand Industrial Contractors, Ltd.

As readers may recall, in December 2017, in Hy-Brand Industrial Contractors, Ltd. (“Hy-Brand”), in a 3-2 decision joined in by the Board Chairman Miscimarra and Members Emanuel and Kaplan, the Board overruled Browning-Ferris and adopted a standard that required proof that putative joint employer entities have actually exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control), the control must be “direct and immediate” (rather than indirect), and joint-employer status will not result from control that is “limited and routine.”

Hy-Brand however, was short-lived. On February 26, 2018, in a unanimous decision by Chairman Marvin Kaplan and Members Mark Pearce and Lauren McFerren, the Board reversed and vacated Hy-Brand, following its finding that a potential conflict-of-interest had tainted the Board’s 3-2 vote in Hy-Brand.

The standard announced this week however marks an attempt by the Board to breathe life back into Hy-Brand.

What Happens Now?

Under the Administrative Procedures Act, the public and interested parties will now have sixty days to submit comments “on all aspects of the proposed rules” for the Board’s consideration.

Democratic Senators Elizabeth Warren, Kirsten Gillibrand, and Bernard Sanders previously announced in a May 2018 letter, when the Board indicated it was looking into rulemaking concerning the test for determining joint-employer, that it was their view that the same conflicts of interest that resulted in the Board’s decision to vacate Hy-Brand at least raised ethical concerns.

While there is nothing inherently suspect about an agency proceeding by rulemaking, it is impossible to ignore the timing of this announcement, which comes just a few months after the Board tried and failed to overturn Browning-Ferris, and appears designed to evade the ethical constraints that federal law imposes on Members in adjudications. The Board’s sudden announcement of rulemaking on the exact same topic suggests that it is driven to obtain the same outcome sought by Member Emanuel’s former employer and its clients, which the Board failed to secure by adjudication.

According to Politico, Senator Warren has now renewed her concerns about the proposed rule and the conflict issues that resulted in the Board vacating Hy-Brand. “After getting caught violating ethics rules the first time, Republicans on the Board are now ignoring these rules and barreling towards reaching the same anti-worker outcome another way.”

Given these considerations, it is quite foreseeable that opponents of the proposed rule may seek to at least delay, if not defeat the proposed rule’s taking effect by litigation.

Featured on Employment Law This Week: General Counsel Peter Robb has issued a memo to National Labor Relations Board regional directors that offers guidance in applying the Board’s Boeing decision when considering the legality of rules.

Robb instructs the regional offices to refer cases when there is uncertainty to the Board’s Division of Advice for direction. The General Counsel memo that was issued at the beginning of June provides very specific guidance regarding the placement of work rules into each of the three categories. The memo summarizes each of the three categories of rules. It provides concrete examples of the rules falling into each category and offers a brief analysis of the balancing test applied to each example. What is also significant about the memo is it serves as a reminder as to what has not changed since the Boeing decision.

Watch the segment below.

On Wednesday, the Senate narrowly confirmed John Ring, a management-side labor attorney from Morgan Lewis & Bockius LLP, to the National Labor Relations Board (“NLRB” or the “Board”).  With this vote, Ring fills the last remaining open seat on the Board, which was previously held by former Chairman Philip Miscimarra.  Ring’s term will expire on December 16, 2022.  The confirmation vote of 50-48 was largely down party lines, with only two Democrats voting in favor of Ring’s confirmation.  The strong opposition from the Democrats is likely due to the perceived efforts of the Trump administration to install pro-business members to the Board.  Several prominent Democratic senators, including Patty Murray (D-Wash.) and Elizabeth Warren (D-Mass.), made very critical statements about Ring ahead of the vote.

On Thursday April 12th, the President announced that he was naming Ring to serve as Chairman of the Board. That action does not require Senate confirmation.  Marvin Kaplan who was previously named Acting Chairman will continue as a Board member. The addition of Ring to the NLRB once again gives Republican-appointees a 3-2 majority, which likely means several Obama-era pro-labor rulings will be overturned in the coming months and years.  When the Republican appointees briefly had a 3-2 majority at the end of 2017, several Obama-era decisions were overturned, including setting forth a new standard to evaluate handbook rules and overturning the Obama Board’s decision in Specialty Health Care eliminating micro-units.  Notably, with Ring’s appointment, it is likely that the Board will again revisit the standards for determining joint-employer status. In its  December 2017 decision in Hy-Brand  the Board overturned the Browning Ferris Industries decision, which had adopted a more lenient standard for determining joint employer status, and returned to a requirement of “direct and immediate control.”  While Hy-Brand was recently rescinded, it is expected that the newly constituted Board will  likely consider the issue again in the near future.

We will continue to monitor and provide developments on the Hy-Brand and other notable NLRB decisions.

On February 26, 2018, in a unanimous decision by Chairman Marvin Kaplan and Members Mark Pearce and Lauren McFerren, the National Labor Relations Board (“NLRB” or the “Board”) reversed and vacated its December 2017 decision in Hy-Brand Industrial Contractors, Ltd. (“Hy-Brand”), which had overruled the joint-employer standard set forth in the 2015 Browning-Ferris Industries (“Browning-Ferris”) decision. The decision followed the release of a finding that a potential conflict-of-interest had tainted the Board’s 3-2 vote. What this means, at least for the moment, is that the lower standard for determining joint-employer status in Browning-Ferris is the law once again.

What Is The Browning-Ferris Standard?

As we previously reported, under the Browning-Ferris standard, “[t]he Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.”  Under Browning-Ferris, the primary inquiry is whether the purported joint-employer possesses the actual or potential authority to exercise control over the primary employer’s employees, regardless of whether the company has in fact exercised such authority.  This standard is viewed as employee and union-friendly, and led to the issuance of complaints alleging joint-employer status in an increased number of circumstances.

What Did Hy-Brand Set As the Test for Joint-Employer Status?

Later, in Hy-Brand, as we noted, the Board rejected the Browning-Ferris standard and returned to a more employer-friendly standard, based on the common law test for determining whether an employer-employee relationship exists as a predicate to finding a joint-employer relationship and adding more than just the right to exercise control.  Under Hy-Brand, a finding of joint-employer status would require proof that putative joint employer entities have actually exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control), the control must be “direct and immediate” (rather than indirect), and joint-employer status will not result from control that is “limited and routine.”  This decision had stopped at least some cases relying on Browning-Ferris in their tracks.

What Happens Next?

While Hy-Brand has been reversed for the time being, we expect the Board, once the Senate acts on President Trump’s nomination of John Ring to fill the seat vacated this past December by then Chairman Philip Miscimarra, to reinstate the joint-employment standard articulated in Hy-Brand or a similar standard.

As noted above, the reversal of Hy-Brand follows the ethics memo published by NLRB Inspector General David Berry finding that Member William Emanuel should have abstained from the decision in Hy-Brand because of the fact that the law firm of which he was a member was involved in the case.  There are a number of other cases in which similar conflict issues have arisen, also arguing that Member Emanuel should recuse himself.

Congress May Act

Separate and part from a future Board decision, as we noted in November, the House of Representatives passed the Save Local Business Act (H.R. 3441) which, if enacted, would amend the National Labor Relations Act and the Fair Labor Standards Act to establish a Hy-Brand-like direct control standard for joint employer liability.  The reversal of Hy-Brand may now put increased pressure on the Senate to pass the bill.

What Should Employers Do Now?

Employers and other parties with matters before the Board involving joint-employer issues now, whether in the context of unfair labor practice cases or representation cases, now will need to focus on both the Browning-Ferris standard and the Hy-Brand test to ensure that they preserve all arguments and issues recognizing the likelihood that sooner rather than later the Board will adopt a test that requires more than is required under Browning-Ferris to establish the existence of a joint-employer relationship, with all of the attendant responsibilities.  We will continue to follow this issue and report on developments.

In the months following Donald Trump’s inauguration, those interested in the National Labor Relations Board (“NLRB” or “Board”) waited anxiously for the new President to fill key positions that would allow the Board to reconsider many of the actions of the past eight years. Over the last six months, the Board has begun to revisit, and overrule, several union-friendly and pro-employee Obama-era Board decisions. The Board’s new General Counsel has also given clear guidance as to where else employers can expect to see his office pursue further changes in how the National Labor Relations Act (“NLRA” or “Act”) will be interpreted and enforced.

In this Take 5, we offer an overview of key aspects of what the new Board has done to date, and what can be expected going forward:

  1. What to Look Out for This Year at the NLRB
  2. Hy-Brand Industrial Overrules Browning-Ferris and Sets New NLRB Standard for Determining Joint-Employer Status
  3. NLRB Ruling in The Boeing Co. Establishes New Standards Governing Employee Handbook Rules and Policies
  4. The Trump Board Signals a Return to Traditional Standards in Representation Cases
  5. As the NLRB Steps Back, Cities Step Forward

Read the full Take 5 online or download the PDF.

The House of Representatives recently passed the Save Local Business Act (H.R. 3441), which marks an important step in the campaign to reverse the Board’s controversial loosening in Browning Ferris Industries of the long standing tests for determining whether two businesses are joint employers expansion and share bargaining obligations and liability for each other’s actions.  The measure seeks to protect businesses with staffing, franchise and other contractual relationships from liability and union bargaining obligations for another business’ workers unless one business exercises direct control over the employees of the other.

Browning Ferris Expanded Liability for Franchises and Contractors

As we have previously reported, the Board fashioned a new joint employer standard in its 2015 Browning Ferris decision, which expanded joint employer status to any entity that merely possesses, but does not actually exercise, direct or indirect control over the working conditions of another business’ employees.   Browning Ferris jettisoned decades of Board precedent, which formerly required putative joint employers to not only possess the means to control terms and conditions of employment, but to also exercise that control in some meaningful way.  This decision widely impacted franchises as well as businesses that utilize contractors or retain personnel employed by staffing or temporary employment agencies.  If found a joint employer, the business can be required to bargain with any union representing its contractors employees and found liable for any unfair labor practices it or the contractor commits.

Citing a statistic that more than 2.87 million workers are now employed through temporary employment agencies, the Board and labor unions hailed the decision as a critical refinement that better reflects the economic realities of the modern workplace given the rise of nontraditional employment arrangements and complex franchise and contractual relationships  in which two or more independent businesses often arguably co-determine working conditions.  Opponents, however, say the revised standard hurts small businesses and creates liability for employers who, in reality, have absolutely no actual influence over the other employer’s employees’ working conditions.  In just the short time since Browning-Ferris, some of these fears have ostensibly materialized as the Board has sanctioned mixed bargaining units comprised of “solely employed workers” and “jointly employed workers,” and now requires separate businesses to bargain jointly over working conditions even though one or more of the businesses may have no actual influence or control over the working conditions of the other business’ employees.

Next Steps For The Save Local Business Act

Although Browning-Ferris is currently on appeal before the United States Court of Appeals for the District of Columbia, the Save Local Business Act represents an attempt to forge a path forward by amending the Act itself to clarify who may be considered a joint employer.   The bill passed the House with a vote of 242-181, with eight Democrats voting in favor of the measure.  Republicans have been touting the bill as a bipartisan success, but the measure may have a difficult road ahead in the Senate.  A similar bill died in the Senate last year after it failed to garner enough support from Democrats.  There is a good chance that the Save Local Business Act will meet a similar fate if it fails to secure bipartisan support in the Senate, which it is not likely to receive.  That is because although Republicans would have the votes to pass the Act, if it reached the floor for a vote, they do not at this time have the 60 votes they would need to overcome an effort to filibuster by Senate Democrats.

By appointing Philip Miscimarra, who has served as a Member of the National Labor Relations Board (“NLRB” or “Board”) since August 2013, to serve as Acting Chair of the agency, President Donald Trump has taken the first step in what will undoubtedly be an ongoing process to change the National Labor Relations Board. Chairman Miscimarra is the only Republican currently serving on the Board. Mark Gaston Pearce, who has served as chairman, a Democrat who has served as chairman since 2011 and as a Board Member since 2010, will continue to serve under his appointment which expires in August 2018.

Significantly, there are two vacancies on the five member Board at this time. This means that President Trump will now be able to fill the two vacant seats with Republicans, giving the Board a Republican majority.  By tradition, Presidents have filled three of the five seats on the Board with members of their own political party and two seats with members of the other party.  Thus, once the President nominates and the Senate confirms two new Board members, the Board will likely revisit many of the decisions of the past eight years, in which the Obama Board took an expansive view of the National Labor Relations Act’s (“NLRA” or the “Act”) meaning and its application to a wide range of representation and unfair labor practice law, including the Board’s expansion of its definition of joint employer status, and the Board’s recent holding that graduate students and teaching assistants are employees with the right to join and form unions, to cite but two examples.

Notably, since joining the Board in 2013, Mr. Miscimarra has frequently been in the minority, dissenting from many of the changes in the interpretation and application of the Act that came to be a hallmark of the Obama Board. Many of his dissents were from what were seen by many observers as an attempt to expand the Act’s definitions of protected activity, in the realm of employee handbooks and workplace rules, in a manner that did not reflect the real world challenges that employers face. Particularly noteworthy have been his dissents in a group of Board decisions that addressed the challenges that employers face in conducting workplace investigations and the conflicting obligations under the NLRA and other statutes.

An even more seismic change will come to the NLRB in November 2017, when the term of the Board’s General Counsel, Richard F. Griffin, Jr. expires and the new President gets to nominate his successor.

Hoagie Sandwich and ChipsThis past week, Doctor’s Associates Inc., which is the owner and franchisor for the Subway sandwich restaurant chain entered into a Voluntary Agreement (the “Agreement”) with the US Department of Labor’s (DOL) Wage and Hour Division “as part of [Subway’s] broader efforts to make its franchised restaurants and overall business operations socially responsible,” and as part of Subway’s “effort to promote and achieve compliance with labor standards to protect and enhance the welfare” of Subway’s own workforce and that of its franchisees.

While the Agreement appears intended to help reduce the number of wage and hour law claims arising at both Subway’s company owned stores and those operated by its franchisee across the country, the Agreement appears to add further support to efforts by unions, plaintiffs’ lawyers and other federal and state agencies such as the National Labor Relations Board (NLRB or Board), DOL’s own Occupational Safety and Health Administration (OSHA) and the EEOC to treat franchisors as joint employers with their franchisees.

What Is in the Agreement?

While on its face this may sound like a good idea and one that should not be controversial, in reality by entering into this Agreement, which among other things commits Subway to working with both the DOL and Subway’s franchisees, to develop and disseminate wage and hour compliance assistance materials and to work directly with the DOL to “explore ways to use technology to support franchisee compliance, such as building alerts into a payroll and scheduling platform that SUBWAY offers as a service to its franchisees,” and although the Agreement is notable for its silence on the question of whether the DOL considers Subway to be a joint employer with its franchisees, the Agreement is likely to be cited, by unions, plaintiffs’ lawyers and other government agencies such as the NLRB as evidence of the fact that Subway as franchisor possesses the ability, whether exercised or not, to directly or indirectly affect the terms and conditions of employment of its franchisees’ employees, and as such should be found to be a joint employer with them.

Notably, while the Agreement does not specifically address the exercise of any such authority on a day to day basis, it does suggest an ongoing monitoring, investigation and compliance role in franchisee operations and employment practices by Subway and a commitment by Subway as franchisor to take action and provide data to the DOL concerning Fair Labor Standards Act compliance.  In the past, courts have in reliance on similar factors held that a franchisor could be liable with its franchisees for overtime, minimum wage and similar wage and hour violations.

Of particular interest to many will be the final section of the Agreement, titled “Emphasizing consequences for FLSA noncompliance.”  This section not only notes that “SUBWAY requires franchisees to comply with all applicable laws, including the FLSA, as part of its franchise agreement,” but also what action it may take where it finds a franchisee has a “history of FLSA violations”:

SUBWAY may exercise its business judgment to terminate an existing franchise, deny a franchisee the opportunity to purchase additional franchises, or otherwise discipline a franchisee based on a franchisee’s history of FLSA violations.

Will Subway’s “Voluntary Agreement” with the DOL Have Any Impact Beyond Wage and Hour Matters?

As we approach the one year anniversary of the NLRB’s decision in Browning Ferris Industries, it is abundantly clear that not only the Board itself but unions and others seeking to represent and act on behalf of employees are continuing to push the boundaries and expand the application of Browning Ferris.  In fact the Board has been asked to find that policies and standards such as those evidencing a business’s commitment to “socially responsible” employment practices, the very phrase used in the Subway-DOL Agreement, should be evidence of indirect control sufficient to support a finding of a joint employer relationship between a business and its suppliers.

Moreover, the NLRB and unions such as UNITE HERE and the Service Employees International Union continue to aggressively pursue their argument that the terms of a franchise agreement and a franchisor’s efforts to ensure that its franchisees, who conduct business under its brand, can also be sufficient to support a finding of joint employer status.  No doubt they will also point to the Subway Agreement with the DOL as also being evidence of such direct or indirect control affecting franchisees’ employees’ terms and conditions.

What Should Employers Do Now?

Employers are well advised to review the full range of their operations and personnel decisions, including their use of contingent and temporaries and personnel supplied by temporary and other staffing agencies to assess their vulnerability to such action and to determine what steps they make take to better position themselves for the challenges that are surely coming.

Equally critical employers should carefully evaluate their relationships with suppliers, licensees, and others they do business with to ensure that their relationships, and the agreements, both written and verbal, governing those relationships do not create additional and avoidable risks.

The National Labor Relations Board (“NLRB” or “Board”) announced in its 3-1 decision in Miller & Anderson, 364 NLRB #39 (2016) that it will now conduct representation elections and require collective bargaining in single combined units composed of what it refers to as “solely employed employees” and “jointly employed employees,” meaning that two separate employers will be required to join together to bargain over such employees’ terms and conditions of employment.” To understand the significance of Miller & Anderson, one must consider the Board’s August 2015 decision in Browning Ferris Industries (“BFI”), in which the Board adopted a new and far more relaxed standard for holding two entities to be joint employers.

As the Board explained in its press release trumpeting the Miller & Anderson decision, it will now hold elections and require bargaining in “petitioned-for units combining solely and jointly employed workers of a single user employer,” in those cases in which a union asks for such a mixed employer unit so long as the Board finds the jointly and solely employed workers “share a community of interest,” under the Board’s “traditional community of interest factors for determining unit appropriateness.”

Oakwood Care Center Overruled – Employers’ Consent No Longer Required

Board has overturned its 2004 decision in Oakwood Care Center, 343 NLRB 659 and held that when a union petitions for a representation election in a unit that includes both “solely employed” and jointly employed employees of a single “user employer” the Board will no longer require the consent of the employer or employers before directing such an election and certifying a union to represent such a unit. What this means essentially is that unions alone will now have the right to decide when and where they will require such mixed units.

Like it did in BFI, the Board again justified overruling precedent in part based on “changes in the American economy,” finding “Oakwood imposes additional requirement that are disconnected from the reality of today’s workforce and are not compelled by the Act.”

“User Employers” and “Supplier Employers” Will Be Required to Bargain Together

In BFI, the Board held that a business will be held to be a joint employer of another employer’s employees where it has the ability to impact the terms and conditions of the other employer’s employees even if it never exercises that right. Under the new standard enunciated by the Board majority in that case, “[t]he Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment.”

Now, under Miller & Anderson, such a user employer will be required to bargain over the terms and conditions of a supplier employer’s employees as to whom the Board finds it to be a joint employer.  Additionally, the supplier employer will also have to bargain over the jointly employed employees’ terms and conditions.  In overruling precedent and imposing a new combined unit bargaining obligation, the Board reasoned that requiring consent of both employers for a combined unit of jointly and non-jointly employed employees did not afford employees “the fullest freedom” to “self-organization.”  However, as Member Miscimarra’s dissent points out, the Board majority attempts to explain away the specific language of Section 9(b) of the NLRA and applicable legislative history limiting the broadest units the Board can impose to “employer units” as opposed to multi-employer units.

The potential for confusion and uncertainty is enormous. In an attempt to minimize these concerns, the Board majority stated that the so-called user employer’s bargaining obligations will be limited to those of such workers’ terms and conditions that it possesses “the authority to control.”

What Does All of This Mean?

As we pointed out, the Board’s decision in Miller & Anderson, which has been anticipated for more than one year, is another critical link in the current Board’s efforts to make it easier for unions to successfully organize and obtain bargaining rights.  It should be seen as the next step in the progression that began with the Board’s change in its representation election rules that were designed for quicker elections and representation proceedings in which employers lost their right to litigate critical unit and supervisory status issues before an election is directed, and to appeal of a Regional Director’s decision and direction of election before an election is conducted, and the time they have traditionally had to communicate with employees before they vote in an election.

When employers voiced their concern that the new election rules would mean that they would in many instances not have any meaningful opportunity to present counterarguments to a union’s promises before a vote took place, the Board and other advocates for the expedited rules countered that this was an empty argument and that employers were almost always aware of union activity long before a petition was filed. That argument now looks particularly empty given Miller & Anderson’s dictates allowing petitions for user and supplier employers’ employees in the same unit, where at least one of the two joint employers will likely be totally aware of what is occurring among a group of another employer’s employees.

Similarly, while the Board suggests that the supplier and user employer will only have an obligation to bargain over those terms and conditions they possess the authority to control, the fact is that this is an invitation to extensive litigation and disagreement over which entity has the “authority” to control which terms and conditions.

What Should Employers Do Now?

At a minimum, a detailed risk assessment of an employer’s workforce and its reliance upon its own employees and temporaries, leased and contract labor employed and controlled, in whole or in part, by so-called supplier employers is in order. “User” employers should determine the goals and risks associated with a relationship and determine whether it is possible and/or desirable to avoid a joint employer relationship or embrace it but attempt to control liability.  Both “supplier” and “user” employers should look for contractual provisions regarding defining the relationship, including who controls and does not control certain aspects, indemnification provisions, provisions related to responses and responsibilities related to union organizing and collective bargaining and similar concerns.  Experienced labor counsel should be consulted to assist in these issues.

Employment Law This Week has released bonus footage from its interview with Steven Swirsky, co-founder of this blog and Member of the Firm at Epstein Becker Green.

In its recent Browning-Ferris decision, the NLRB loosened the standard for determining who qualifies as a joint employer. In this video, Mr. Swirsky elaborates on his comments featured as the top story in Employment Law This Week, Episode 1 (Oct. 19, 2015).

 

Watch on YouTube or Vimeo or Download in MP4 or WMV format.