NLRB Proposes New, More Limited Joint Employer Standard

NLRB Proposes New, More Limited Joint Employer Standard

The US National Labor Relations Board announced on Thursday that it would publish a Notice of Proposed Rulemaking in the Federal Register today proposing a new version of the rule governing joint employer liability under the National Labor Relations Act:

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.

As explained in the Notice, rulemaking in this important area of the law would foster predictability, consistency and stability in the determination of joint-employer status. The proposed rule reflects the Board majority’s initial view, subject to potential revision in response to public comments, that the National Labor Relations Act’s intent is best supported by a joint-employer doctrine that does not draw third parties, who have not played an active role in deciding wages, benefits, or other essential terms and conditions of employment, into a collective-bargaining relationship for another employer’s employees.

Since regaining a Republican majority under President Donald Trump, the NLRB has sought to overturn a decision made during the Obama administration in 2015 that defined “joint employer” to include entities with which a business has indirect control, or a “horizontal” relationship, making them responsible for franchisees’ or contractors’ compliance with the Fair Labor Standards Act and other employee protection laws. Previously, organizations were only considered joint employers in the case of a “vertical” relationship, wherein an organization exerted direct control over its subordinate entity’s employees or the terms of their employment. Critics of the expanded definition say it creates too much uncertainty for businesses involved in subcontracting and franchise relationships about their employment liability.

The board made its first attempt to change the rule last December, ruling in a case known as Hy-Brand that it would resume applying the previous rule, under which employers are only deemed joint employers if there is proof that they have exercised direct and immediate control over essential employment terms of another organization’s staff. It was forced to withdraw the Hy-Brand ruling, however, in February, when the agency’s inspector general discovered a conflict of interest on the part of William J. Emanuel, a member of the board who participated in that decision.

Rather than seek another case through which to overturn the expanded joint employer rule, NLRB chairman John F. Ring revealed earlier this summer that the board would affect this change through the rulemaking process, hence Thursday’s announcement. In fact, the proposed new rule defines joint employers more restrictively than the pre-2015 rule, adding the word “substantial” to the “direct and immediate control” joint employers must exercise over workers’ employment terms. The proposal is subject to a 60-day public comment period; these comments may affect the wording of the final rule.

Critics of the board, including leading Democrats in Congress, are accusing the board of attempting to enact an illegitimate policy, the New York Times reports, and labor groups may sue to block it:

The rule could be challenged in court on procedural grounds, an outcome that Wilma B. Liebman, a Democratic former board member who served as chairwoman under Mr. Obama, said was likely. Ms. Liebman said groups representing workers would probably argue that the conflict-of-interest problems that undid the earlier attempt to change the joint-employer standard also doom the rule-making approach in light of Mr. Emanuel’s significant role. …

Depending on how the process plays out, the rule could also be vulnerable to arguments that the board did not sufficiently consider public views. Plaintiffs might argue that “the board majority went into it with their minds made up,” Ms. Liebman said. “You have to invite public comment and seriously consider it, give reasons why you might reject certain ideas.”

A more durable solution to the dispute over the definition of joint employers would require Congress to amend the NLRA and include an explicit definition of this term. Five lawmakers, including four Republicans and one Democrat, introduced a bill last year that would do just that, adding language to the law stipulating that a person or organization would be considered the joint employer of a worker “only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.” The so-called Save Local Business Act passed the House of Representatives last November but has since stalled in the Senate, where it faces stiffer opposition.