United States: Senate Hearing Focuses On Definition Of Joint Employment

Last Updated: February 6 2015
Article by Michael J. Lotito

The implications of an expanded definition of "joint employer" under the National Labor Relations Act was the topic of debate among Senators and panelists during a Thursday hearing held by the Committee on Health, Education, Labor and Pensions. According to Chairman Lamar Alexander (R-TN), if the National Labor Relations Board decides to adopt the NLRB General Counsel's position on joint employment in the pending Browning-Ferris case, this move "would destroy business opportunities for about 700,000 franchisees and employers." 

In December, the Board's Office of the General Counsel filed a series of unfair labor practice complaints against franchisor McDonald's USA LLC and some of its franchisees as joint employers. NLRB General Counsel (GC) Richard Griffin has taken the position that the NLRB should abandon the current standard used to determine whether an employer is considered a joint employer with other entities, and instead return to the standard in effect prior to 1984. For the past 30 years, the relevant inquiry has been whether the company exerts a significant and direct degree of control over another business's employees and their essential terms and conditions of employment. The GC is of the mindset that the Board should use a "traditional" theory of joint-employment, which is that an entity is considered a joint employer if it "has the potential" to control such terms and conditions of employment, or if "industrial realities" otherwise makes it an essential party to meaningful collective bargaining. This expanded joint-employer stance aligns with the theory set forth by Department of Labor Wage and Hour Administrator David Weil that a "fissured" workplace leads to greater labor and employment law violations. 

To complicate matters, as discussed during today's hearing, although the Board has not yet issued its decision in Browning-Ferris, it is expected to adopt a new standard for determining joint employment in this case. Many hearing witnesses explained that the uncertainty created by the GC's and Board's actions is having a negative impact on the franchise industry model. 

Former Board member Marshall B. Babson, who was one of President Reagan's Democratic appointments, testified that by changing the definition of joint employment, the Board is exercising authority "outside the boundaries" of the NLRA. "This is not a question of policy preferences when we're taking about changing the rule of joint employer status," he said.  Babson stressed that" it is not in the interests of the NLRB, employers or employees to affix liability when there is no relationship between the company sought to be considered an employer and the employees." 

The GC and some Senators at the hearing were of the mindset that the changing "economic realities" justify such a change in definition.  One witness said that because employment relationships are "dynamic," the Board is "simply reexamining its joint employer standard to make sure it effectuates its obligations under the Act."  Ranking member Patty Murray (D-WA) mentioned the increased use of subcontracting, echoing Wage and Hour Administrator Weil's position that this "changing pattern in the labor market" leads to increased wage and hour violations, thus necessitating more oversight. 

Sen. Elizabeth Warren (D-MA) suggested that any evaluation of whether an employer is in fact a joint employer should be made on a fact-specific basis. 

Babson, however, disagreed with Warren's position, saying that under the "unexercised potential" test, most franchise owners would be affected. He added, "many small businesses would be ensnared by this [Browning-Ferris] decision before it's issued."  He emphasized there is "no support in NLRA jurisprudence for such a broad, sweeping change." 

Sen. Alexander and Babson noted further that this position would not just affect the franchise industry. Alexander said it would affect any business that uses subcontractors or contracts for services.  

Franchise owner Gerald Moore, testifying on behalf of the International Franchise Association, explained the practical implications of a revised definition. He testified that as a franchise owner, he is the one who decides "who to discipline and who to discharge, as well as who to develop to take on additional responsibility. We decide what benefits to offer our employees." The franchisor, he said, "does not play any role in these types of business decisions." According to the witness, an expanded joint employer standard "would mean that my franchisor would be jointly responsible for all of my employment-related liabilities." The result, he explained, would be "increased control and more day-to-day involvement" by the franchisor.   

When asked by Sen. Alexander about the main danger of a new joint-employer standard on his business, Moore responded that it was "having a franchisor being involved in my business. . . it takes all the control away from us." 

Fellow franchise owner John Sims IV expressed similar concerns: "The General Counsel's new standard shifts the analysis away from the day-to-day control over employment conditions to operational control at the system-wide level. Under the new standard, franchisors would be joint employers whenever the franchisor exercises 'indirect control' over the franchisee. The focus would be on 'industrial realities' that make the franchisor a necessary party to meaningful collective bargaining. The NLRB would find joint employment even though the franchisor plays no role in hiring, firing, or directing the franchisee's employees."  The end result, he said, would be that "opportunities for local business ownership will decline dramatically." 

The NLRB's revisiting the joint-employer standard is just the latest in many controversial steps it has taken in recent years. During witness questioning, Babson called the issuance of the "quickie election" rule shortening the timeframe for holding a representation election, the increase in micro-unions as a result of the Specialty Healthcare decision, and the recent Purple Communications decision which effectively forces many employers to allow employees to use company email systems for organizing purposes, a "triple-headed attack." He said the purpose of the NLRA is to "encourage collective bargaining; it is not intended to guarantee it." 

Panelist Moore supported Sen. Johnny Isakson's (R-GA) suggestion that it should be up to Congress to determine any change in the definition of employer under the NLRA. 

A full list of panelists, links to their testimony, and an archived webcast of the hearing can be found here

The next labor-related hearing will be held Wednesday, February 11, when the HELP Committee will discuss the NLRB's "ambush" election rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael J. Lotito
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