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Common Sense Returns to Joint Employer Status

What the National Labor Relations Board’s 2017 decision means for you

March 04, 2018 Photo

This article is part of CLM's publication Professional Times magazine, a production of CLM's Management & Professional Liability Community. Click to view previous digital editions of Professional Times.

What does the National Labor Relations Board’s (NLRB) 2017 joint employer decision mean to you? Depending on your industry, it means a lot. The Obama NLRB Browning-Ferris decision opened the door to unions filing hundreds of unfair labor practices claims against franchisors and similar companies for the conduct of franchisees and other businesses over which they had no direct control. The decision also had implications for some users of contract and temporary workers.

Despite much talk, the 2015 Browning-Ferris decision actually had little effect on federal and state Occupational Safety and Health Administration evaluations of employer duties at multiemployer worksites. Nonetheless, the new decision in the Hy-Brand Industrial Contractors Ltd. and Brandt Construction case restores some common sense and predictability to the proper way to structure business relationships. Appropriately, while the NLRB rejected the Browning-Ferris test in Hy-Brand, it still found joint employer status under the traditional common law principles espoused prior to Browning-Ferris, and you would likely agree.

To understand the difference, we’ll set out the simplified version of the Browning-Ferris and Hy-Brand NLRB tests for joint employer status and then explain further.

In Browning-Ferris, the NLRB concluded that two businesses can be joint employers when one business simply possessed “indirect” or “reserved” control—even if they have never exercised it.

In Hy-Brand, the NLRB restored the common law test that businesses would be joint employers only if they shared or co-determined those matters governing the essential terms and conditions of employment, and an employer would be a joint employer only if it actually exercised its right to control and the control was direct, immediate, and not limited and routine.

The Obama-NLRB Browning-Ferris Test

Few Obama administration policies more angered employers than the unworkable and confusing test that the NLRB adopted in Browning-Ferris to determine that two businesses were joint employers of the same employees. This joint employer obligation was broader and more invasive than joint employer liability under other employment-related laws. The expansive test was intended by its union proponents to scoop up the increasingly common franchisee employees and other modern employment relationships.

In the Browning-Ferris decision, the NLRB concluded that two businesses can be joint employers when one business simply possesses “indirect” or “reserved” control—even if it has never exercised that authority—upending the previous test requiring “direct and immediate control.” Proponents of the Browning-Ferris test felt that franchisors and others set and controlled terms and conditions of employment without liability.

The Browning-Ferris decision did not actually involve franchisors, although the NLRB’s high-profile focus on restaurants and similar franchise-based employers continues, which is a reminder that more than franchisees are affected.

The Browning-Ferris Industries (BFI) location was a California recycling facility that employed unionized workers. BFI contracted with Leadpoint Business Services, a non-union staffing company, to provide additional workers at the plant. Although the contract between the two separate businesses provided that the staffing company was the sole employer of the temporary workers, BFI maintained the right to control several terms and conditions of employment.

In July 2013, a union filed a petition seeking a representation election for a bargaining unit comprised of approximately 240 Leadpoint workers, claiming that BFI and the staffing company were joint employers of the employees in question. BFI objected to this characterization, noting that Leadpoint controlled its own employees’ wages, benefits, day-to-day supervision, schedules, hiring, and discipline. While BFI admitted that it had the contractual right to control certain of these aspects, it demonstrated that it did not exercise this right on a regular basis or in any meaningful way. However, this seemingly significant factor became irrelevant for the NLRB’s purposes.

For 30 years, the NLRB had held that two companies are considered joint employers only if they share or co-determine those matters governing the essential terms and conditions of employment. Under that standard, an employer would only be held to be jointly employing workers if they actually exercised the right to control. Moreover, under this standard, the exercise of such control must have been direct, immediate, and not limited and routine.

In Browning-Ferris, the NLRB eliminated the requirement that the employer actually exercise control. Instead, the NLRB decided that a business need only retain the contractual right to control to be considered a joint employer, even if it never exercised its authority. Further, the NLRB rejected the direct, immediate, and not limited and routine criteria, holding instead that indirect control (e.g., control through an intermediary) would be sufficient to find joint employment.

You may be thinking (a) that makes no sense, and (b) how in the heck would I determine when my never-exercised authority over a contractor or other employer will make me a joint employer under the National Labor Relations Act? The “test” was as clear as mud.

What About OSHA?

Although the Browning-Ferris decision generated OSHA inspections of franchisees, mainly due to union complaints, federal OSHA never changed its multiemployer site analysis, which allows OSHA to cite one or multiple employers on a site based on their being:

  • The exposing employer whose employees were exposed to a hazard even if the employer did not create it.
  • The employer who created the hazard.
  • The employer who had a duty to correct the hazard.
  • The controlling employer (a general contractor or a factory bringing in contractors, etc.).

OSHA did not need a joint employer analysis, although some parties viewed the approach as a means to go after employers that never physically had any employees on the franchisee’s site.

California, Oregon, and Washington OSHAs have slightly different and arguably more straightforward approaches to multiemployer analysis.

The most problematic and heavily litigated issue is the discussion on controlling employer’s duties. After years of litigation, the multiemployer analysis is accepted throughout U.S. courts except in the 5th Circuit (Texas, Louisiana, Mississippi, and Puerto Rico). Our firm prevailed before the 5th Circuit in Secretary of Labor v. Hensel Phelps Construction Co., in which the appellate court rejected the controlling employer analysis as applied. The case is on appeal, so stay tuned. Temporary employees are a separate issue, with OSHA reserving the right to cite both the staffing employer and the party supervising them on a day-to-day basis.

Why Did Hy-Brand Lose?

Despite being in different states, the two companies—Hy-Brand and Brandt Construction—were closely interconnected, with the same president, vice president, secretary, treasurer, and owners. Management exercised joint control over essential employment terms of workers from both companies; the control was direct and immediate, not limited and routine.

After several workers went on strike over alleged unsafe working conditions and perceived substandard wages and benefits, management terminated their employment. The employees brought unfair labor practice charges against both entities on a joint employment theory, and the administrative law judge found the entities to be joint employers by applying the Browning-Ferris standard. On Dec. 14, 2017, the full Trump NLRB issued a new Hy-Brand decision rejecting the Browning-Ferris test.

After the NLRB’s reversal in Hy-Brand, the NLRB asked the D.C. Circuit Court to reverse the Browning-Ferris decision. The court did so on Dec. 28, 2017, and, in a one-sentence decision, sent the case back to the NLRB. Nevertheless, the NLRB reasonably ruled in Hy-Brand that the two entities were joint employers even under the old standard.

Put simply, both the Obama and Trump NLRBs claimed to be following the traditional “common law test,” but arguably the new test is also common-sense based. Sadly, many areas have different approaches to determining joint employment, but the new NLRB actions signal closer alignment of its tests with the approaches under wage-hour, discrimination, and other legal schemes.

Common Sense Returns to Joint Employer Status

What the National Labor Relations Board’s 2017 decision means for you

By Howard Mavity and Karl Lindegren

 

What does the National Labor Relations Board’s (NLRB) 2017 joint employer decision mean to you? Depending on your industry, it means a lot. The Obama NLRB Browning-Ferris decision opened the door to unions filing hundreds of unfair labor practices claims against franchisors and similar companies for the conduct of franchisees and other businesses over which they had no direct control. The decision also had implications for some users of contract and temporary workers.

 

Despite much talk, the 2015 Browning-Ferris decision actually had little effect on federal and state Occupational Safety and Health Administration evaluations of employer duties at multiemployer worksites. Nonetheless, the new decision in the Hy-Brand Industrial Contractors Ltd. and Brandt Construction case restores some common sense and predictability to the proper way to structure business relationships. Appropriately, while the NLRB rejected the Browning-Ferris test in Hy-Brand, it still found joint employer status under the traditional common law principles espoused prior to Browning-Ferris, and you would likely agree.

 

To understand the difference, we’ll set out the simplified version of the Browning-Ferris and Hy-Brand NLRB tests for joint employer status and then explain further.

  • In Browning-Ferris, the NLRB concluded that two businesses can be joint employers when one business simply possessed “indirect” or “reserved” control—even if they have never exercised it.

  • In Hy-Brand, the NLRB restored the common law test that businesses would be joint employers only if they shared or co-determined those matters governing the essential terms and conditions of employment, and an employer would be a joint employer only if it actually exercised its right to control and the control was direct, immediate, and not limited and routine.

 

The Obama-NLRB Browning-Ferris Test

Few Obama administration policies more angered employers than the unworkable and confusing test that the NLRB adopted in Browning-Ferris to determine that two businesses were joint employers of the same employees. This joint employer obligation was broader and more invasive than joint employer liability under other employment-related laws. The expansive test was intended by its union proponents to scoop up the increasingly common franchisee employees and other modern employment relationships.

 

In the Browning-Ferris decision, the NLRB concluded that two businesses can be joint employers when one business simply possesses “indirect” or “reserved” control—even if it has never exercised that authority—upending the previous test requiring “direct and immediate control.” Proponents of the Browning-Ferris test felt that franchisors and others set and controlled terms and conditions of employment without liability.

 

The Browning-Ferris decision did not actually involve franchisors, although the NLRB’s high-profile focus on restaurants and similar franchise-based employers continues, which is a reminder that more than franchisees are affected.

 

The Browning-Ferris Industries (BFI) location was a California recycling facility that employed unionized workers. BFI contracted with Leadpoint Business Services, a non-union staffing company, to provide additional workers at the plant. Although the contract between the two separate businesses provided that the staffing company was the sole employer of the temporary workers, BFI maintained the right to control several terms and conditions of employment.

 

In July 2013, a union filed a petition seeking a representation election for a bargaining unit comprised of approximately 240 Leadpoint workers, claiming that BFI and the staffing company were joint employers of the employees in question. BFI objected to this characterization, noting that Leadpoint controlled its own employees’ wages, benefits, day-to-day supervision, schedules, hiring, and discipline. While BFI admitted that it had the contractual right to control certain of these aspects, it demonstrated that it did not exercise this right on a regular basis or in any meaningful way. However, this seemingly significant factor became irrelevant for the NLRB’s purposes.

 

For 30 years, the NLRB had held that two companies are considered joint employers only if they share or co-determine those matters governing the essential terms and conditions of employment. Under that standard, an employer would only be held to be jointly employing workers if they actually exercised the right to control. Moreover, under this standard, the exercise of such control must have been direct, immediate, and not limited and routine.

 

In Browning-Ferris, the NLRB eliminated the requirement that the employer actually exercise control. Instead, the NLRB decided that a business need only retain the contractual right to control to be considered a joint employer, even if it never exercised its authority. Further, the NLRB rejected the direct, immediate, and not limited and routine criteria, holding instead that indirect control (e.g., control through an intermediary) would be sufficient to find joint employment.

 

You may be thinking (a) that makes no sense, and (b) how in the heck would I determine when my never-exercised authority over a contractor or other employer will make me a joint employer under the National Labor Relations Act? The “test” was as clear as mud.

 

What About OSHA?

Although the Browning-Ferris decision generated OSHA inspections of franchisees, mainly due to union complaints, federal OSHA never changed its multiemployer site analysis, which allows OSHA to cite one or multiple employers on a site based on their being:

  • The exposing employer whose employees were exposed to a hazard even if the employer did not create it.

  • The employer who created the hazard.

  • The employer who had a duty to correct the hazard.

  • The controlling employer (a general contractor or a factory bringing in contractors, etc.).

 

OSHA did not need a joint employer analysis, although some parties viewed the approach as a means to go after employers that never physically had any employees on the franchisee’s site.

California, Oregon, and Washington OSHAs have slightly different and arguably more straightforward approaches to multiemployer analysis.

 

The most problematic and heavily litigated issue is the discussion on controlling employer’s duties. After years of litigation, the multiemployer analysis is accepted throughout U.S. courts except in the 5th Circuit (Texas, Louisiana, Mississippi, and Puerto Rico). Our firm prevailed before the 5th Circuit in Secretary of Labor v. Hensel Phelps Construction Co., in which the appellate court rejected the controlling employer analysis as applied. The case is on appeal, so stay tuned. Temporary employees are a separate issue, with OSHA reserving the right to cite both the staffing employer and the party supervising them on a day-to-day basis.

 

Why Did Hy-Brand Lose?

Despite being in different states, the two companies—Hy-Brand and Brandt Construction—were closely interconnected, with the same president, vice president, secretary, treasurer, and owners. Management exercised joint control over essential employment terms of workers from both companies; the control was direct and immediate, not limited and routine.

 

After several workers went on strike over alleged unsafe working conditions and perceived substandard wages and benefits, management terminated their employment. The employees brought unfair labor practice charges against both entities on a joint employment theory, and the administrative law judge found the entities to be joint employers by applying the Browning-Ferris standard. On Dec. 14, 2017, the full Trump NLRB issued a new Hy-Brand decision rejecting the Browning-Ferris test.

 

After the NLRB’s reversal in Hy-Brand, the NLRB asked the D.C. Circuit Court to reverse the Browning-Ferris decision. The court did so on Dec. 28, 2017, and, in a one-sentence decision, sent the case back to the NLRB. Nevertheless, the NLRB reasonably ruled in Hy-Brand that the two entities were joint employers even under the old standard.

 

Put simply, both the Obama and Trump NLRBs claimed to be following the traditional “common law test,” but arguably the new test is also common-sense based. Sadly, many areas have different approaches to determining joint employment, but the new NLRB actions signal closer alignment of its tests with the approaches under wage-hour, discrimination, and other legal schemes.

photo
About The Authors
Multiple Contributors
Howard Mavity

Howard Mavity is a partner in the Atlanta office of Fisher & Phillips. He can be reached at hmavity@fisherphillips.com

Karl Lindegren

Karl Lindegren is a partner in the Irvine and Los Angeles offices of Fisher & Phillips. He can be reached at  klindegren@fisherphillips.com

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