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.
McDonald’s and the National Labor Relations Bureau have reached a settlement in a dispute over whether the fast-food chain was liable as a “joint employer” for unfair labor practices allegedly committed by some of its franchisees, Nation’s Restaurant News reported on Monday:
” The settlement allows our franchisees and their employees to move forward, and resolves all matters without any admission of wrongdoing,” McDonald’s told Nation’s Restaurant News in a statement released Monday. “Additionally, current and former franchisee employees involved in the proceedings are receiving long overdue satisfaction of their claims.”
Attorneys for the employees say they are not satisfied, however:
Micah Wissinger, an attorney for Fight for $15, said the labor advocacy group opposes the settlement. The group maintains that McDonald’s should take responsibility for the firing of employees who fought for higher wages during organized protests dating back to 2012.
The McDonald’s case is one of several high-profile complaints brought by labor activists against major chains asserting that they were responsible for the labor practices of their franchisees. These cases concern whether franchisors count as “joint employers” for the purposes of labor law; in the 2015 Browning-Ferris case, the NLRB expanded the definition of this term to include entities with which a business has a “horizontal” relationship, exercising indirect control over their practices, as well as those with “vertical” relationships that manage employees more directly.
The National Labor Relations Board has vacated a recent decision to limit the liability of companies for labor violations by their franchisees and contractors under the “joint employer doctrine,” after one member of the board who participated in that decision was found to have a conflict of interest, the New York Times reports:
A report released in early February by the agency’s inspector general found that the member, William J. Emanuel, should have recused himself when the case came before the board in December, shortly after the Republicans gained control. That would have left it split at two votes apiece and preserved the status quo.
On Monday, three other board members, including its Republican chairman, Marvin E. Kaplan, voted to vacate the December decision, citing a determination that Mr. Emanuel “is, and should have been, disqualified from participating in this proceeding” because his former law firm had handled a related case. That opens the door for the more expansive, Obama-era standard to remain in place for several more months, perhaps even years.
The December ruling overturned a decision made by the board under 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. The Labor Department also adopted an expansive view of joint employer doctrine under the Obama administration, which current Labor Secretary Alexander Acosta rescinded last June.
Just days after the National Labor Relations Board’s general counsel sent a memo to the US agency’s regional directors advising them to pull back on the controversial “joint employer” standard adopted by the Obama administration, the board’s new Republican majority overturned the ruling on which that standard was based, the Hill reported late on Thursday:
In a 3-2 decision, the Republican-controlled board overruled the board’s previous 2015 decision in a case, known as Browning-Ferris, which found a company to be considered a joint-employer with a subcontractor if it has “indirect” control over the terms and conditions of employment or has the “reserved authority to do so.”
In a statement, NLRB said in all future and pending cases two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised direct and immediate control over essential employment terms of another entity’s employees.
Restricting the joint employer standard was high on the policy wishlists of several employer groups, particularly the National Restaurant Association, which said it harmed the franchise model. The Trump administration was expected to act on this soon after the new Republican members of the board were seated in August and September. Labor Secretary Alexander Acosta, a longstanding critic of the Obama administration’s expanded definition of joint employers, rescinded Obama-era guidance on joint employer liability in June. Legislation has also been introduced in Congress to write the narrower definition into the National Labor Relations Act.
Five US lawmakers, including four Republicans and one Democrat, have introduced a bill that would change the National Labor Relations Board’s definition of “joint employers,” reversing a policy pursued by the previous administration to broaden the scope of joint employer liability. This reversal would make organizations less vulnerable to litigation related to wage and hour violations by intermediaries such as franchisees, contractors, or temp agencies, Allen Smith explains at SHRM:
The Save Local Business Act would amend the National Labor Relations Act to state, “A person may be considered a joint employer in relation to an employee 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 (including hiring employees; discharging employees; determining individual employee rates of pay and benefits; day-to-day supervision of employees; assigning individual work schedules, positions and tasks; and administering employee discipline).”
The NLRB’s Browning-Ferris decision in 2015 established a precedent for “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, a company was only liable for those under its direct control—a standard to which this bill would return.
Nicole S Glass/Shutterstock.com
US Secretary of Labor Alexander Acosta on Wednesday rescinded two pieces of informal guidance issued by the Obama administration last year concerning how the department defines “joint employers” and independent contractors, The Hill reports:
The Obama administration considered a company jointly liable for complying with the Fair Labor Standards Act — the primary federal law governing minimum wages and overtime pay — and the Migrant and Seasonal Agricultural Worker Protection Act when two or more employers jointly employed an employee. The employee’s hours worked for all of the joint employers during the workweek were to be aggregated and considered as one employment, including for the purposes of calculating overtime pay. …
The Department of Labor (DOL) also rescinded Obama-era guidance on independent contractors on Wednesday. In that guidance, the agency said it considered most workers to be employees under the Fair Labor Standards Act and it was likely to apply a very broad definition when investigating a company’s practices, CNN Money reported at the time.
In January 2016, the Obama Labor Department’s Wage and Hour Division issued an administrator’s interpretation declaring that it considered joint employer regulations applicable to both “vertical” joint employment (when one company hires another that hires an employee in turn) and “horizontal” arrangements “where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.”
Over the past year, the US Department of Labor has been putting pressure on businesses whose relationship with an employee is mediated through another entity, such as a franchise, contractor, or temp agency—and holding them responsible for the compensation and work conditions of these employees. The department contends that an organization in this type of relationship exercises enough control over workers to be considered a “joint employer,” meaning that these employees may be entitled to bargain collectively with that organization, take it to court for labor law violations, or benefit from wage and hour protections afforded to employees of large enterprises but not small ones. Employers and business associations, obviously, disagree. The department’s interpretation is not law—and several states have since passed laws clarifying that franchisers are not joint employers—but its theory is being tested in court.
While the conversation about this new rule has mostly centered on what it means for large organizations, some of the franchisees and other small business owners caught in the middle tell the Wall Street Journal’s Melanie Trottman that they are worried about what it means for their ability to expand:
Franchisees … say they could lose their independence to hire, fire and manage workers as they please. They are also concerned about becoming too independent: Some say their franchisers have scaled back worker training tools and other guidance, fearing regulators would view such involvement as joint-employer-like control. Businesses say they are in a regulatory limbo because the new standard is vague about what constitutes control. The previous test measured the direct control one business had over working conditions of people employed by another business. Now, even indirect control can count.