More change coming for the joint-employer standard

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From English monarchs to administrative agency rules, nothing lasts forever. The same appears true for the joint-employer standard. On September 6, 2022, the United States National Labor Relations Board (NLRB) issued a new proposed rule to revise its standard for determining joint-employer status under the National Labor Relations Act. This proposed version is not as friendly to franchisors.

What is the joint-employer standard?

The joint-employer standard is the concept that two business entities share sufficient control and supervision of an employee such that they may both be considered an employer and are therefore subject to mutual labor law violations. After decades of seemingly settled precedent, the joint-employer standard has experienced a raft of changes over the last several years. Not surprisingly, politics plays a role in this since control of the NLRB (and, thus, many of its policy preferences) typically follows the political party that is in power in Washington D.C. Through the last three presidential administrations, the changes to the joint-employer standard have effectively been a swinging pendulum driven, in part, by the composition of the NLRB. The issuance of a new proposed rule follows that trend.

Joint-employer standard timeline

For decades, one required a showing of “direct and immediate control” of employees, not just indirect control or potential control of employees, before a company could be deemed a joint employer of another company’s employees for the purposes of collective bargaining and potential liability.

In 2015, however, that changed with the NLRB’s decision in Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015), whereby the NLRB ruled, in a 3-2 decision, that a business can be considered a joint employer of another’s workers if it exerts indirect or potential control over those workers’ terms and conditions of employment. The lifecycle of the various Browning-Ferris cases encapsulates well the twisting saga of the joint-employer standard.

In December 2018, the United States Court of Appeals for the District of Columbia held that common law supported the NLRB’s articulation of the joint-employer standard, including a consideration of both (i) an employer’s reserved right to control and (ii) an employer’s indirect control over employees’ terms and conditions of employment. Browning-Ferris Industries of Calif. Inc. v. NLRB, 911 F.3d 1195 (2018). However, the D.C. Circuit found that the NLRB failed to confine its consideration of indirect control consistently with common law limitations and returned the case to the NLRB, directing that it reevaluate the case by considering “indirect control” of only those factors directly related to the essential terms and conditions of employment of the subject employees.

In April 2020, during the pending remand of the Browning-Ferris case, the NLRB – then under Republican control – announced a final rule requiring that joint-employer status may only be established where a company exercises “substantial direct and immediate control” over the essential terms and conditions of another company’s employees.

In July 2020, on remand in the Browning-Ferris case, the Republican-controlled NLRB held that it would be “manifestly unjust” to hold Browning-Ferris retroactively liable as a joint employer based on indirect control because of precedential support during the many years preceding the NLRB’s 2015 decision, which showed “there was a clear rule of law requiring proof of direct and immediate control under the applicable joint-employer test.” Browning-Ferris Indus., 369 NLRB No. 139 (2020). 

In July 2022, however, the D.C. Circuit reversed the NLRB’s ruling, rejecting the NLRB’s finding that prior to its 2015 decision there was a “clear rule” requiring direct control to find joint-employer status. The circuit court again remanded the case back to the NLRB. Sanitary Truck Drivers & Helpers Local 350 v. NLRB, 45 F.4th 38 (2022). Now that control of the NLRB has ping-ponged back into a Democrat-controlled majority, the joint-employer standard is now ripe for further change.

“Direct and immediate control” replaced with an “indirect” or a “reserved control” standard

The NLRB’s new proposed rule would replace the 2020 rule’s emphasis on “direct and immediate control” with an “indirect” or a “reserved control” standard. This new proposed rule would find that two or more employers can be held to be joint employers if such employers “share or codetermine those matters governing employees’ essential terms and conditions of employment.” Moreover, under the proposed rule, what is to be considered as essential terms and conditions of employment “generally include, but are not limited to: wages, benefits, and other compensation, hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules and directions governing the manner, means, or methods of work performance.” The Republican-appointed minority on the NLRB dissented from the new proposed rule arguing, among other things, that it pushes the definition of joint employment far beyond common law agency principles.

Impact on the franchise industry

The public comment period on the NLRB’s proposed rule runs through November 7, 2022; with replies to comments due by November 21, 2022. The NLRB will review these comments and address arguments raised by them in a final rule. It is unclear when a final rule will be promulgated given the anticipated commentary from both sides of the debate. 

For the franchisors, it is evident that this new proposed rule, if enacted, will have a material effect on the franchisor-franchisee relationship and the parties’ respective employees. But given the see-sawing nature of the NLRB’s administrative machinations, and considering the Congress’s apparent inability to pass a law on this issue, the only constant regarding the joint-employer standard appears to be its ability to change with the prevailing political winds.

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