United States: The Ever-Moving Target Of Joint-Employer Standards: Look Out, Employers!

Last Updated: September 23 2015
Article by J. William Manuel

The National Labor Relations Board (NLRB) recently issued a decision in a long-litigated case that further defined how two entities could be considered joint employers under the National Labor Relations Act (NLRA).

The NLRB overturned the regional director's decision that found that workers provided by a staffing agency to a recycling plant were not considered employees of "joint employers" (i.e., both the agency and the plant). The basis for the regional director's holding was that the recycling plant did not "share or co-determine those matters governing the [staffing agency workers'] essential terms and conditions of employment." The agreement between the staffing agency and the recycling plant required that the two entities employ separate supervisors at the facility; the staffing agency had the sole authority to recruit and hire its workers; and the staffing agency had the power to set the wages of its workers. The Teamsters Union challenged the regional director's decision. The Board then asked for input from employers and unions as to whether they should alter their past analysis in determining joint-employer status.

In August 2014, the Board may have tipped its hand at where it was headed on joint employers in a finding involving McDonald's and its restaurant franchisees. In a ruling from the general counsel of the NLRB, it stated that they would treat the corporate McDonald's entity as a "joint employer" along with its franchisees across the country for the purposes of the NLRA. Under that ruling, the national McDonald's corporation could be jointly accountable for workplace conditions in its franchises. That short, and somewhat unexplained, ruling sent shock waves among the retail and fast- food industry.

The BFI decision was the first major ruling since the McDonald's incident to address this joint-employer doctrine. In a 3-2 decision, the Board in BFI held that the recycling plant and the staffing agency should instead be considered joint employers. In doing so, the Board tracked the evolution of the standard stating that the driving factor over the years has been the common-law concept of control and how it is shared between the entities. The Board's history with regard to this standard stretches over several decades. In 1965, the Board examined the case of a company operating a bus terminal and its cleaning contractor. There, the Board held that the two entities should be classified as joint employers because the bus terminal possessed "sufficient control over the work of the [cleaning] employees to qualify as a joint employer."

Throughout the years, the Board would find joint employer status where an employer, although not directly supervising another company's employees, "inspected their work, issued work directives through the other firm's supervisors, and exercised its authority to open and close." In the BFI decision, the Board classifies its approach over the years as being consistent with the common-law concept of control, but readily admits that the Board never offered a clear and comprehensive standard.

In BFI, the Board finally decided to define the standard. The "restated" joint-employer standard, as articulated in this decision, states that:

"Two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may 'share' control over terms and conditions of employment or 'codetermine' them."

The Board noted that it has an "inclusive approach" as to what is considered terms and conditions of employment. Examples of things to examine are hiring, firing, discipline, supervision, controlling of scheduling, assignment of work and determining the manner and method of work performance. Essentially, this is a broad and all-inclusive test.

Importantly, the Board also notes that it will no longer require that a potential joint employer actually exercise the direct right of control it may have. As pointed out by the dissent, this may give the Board license to find joint-employer status based on the slightest, "most tangential" evidence of control and "any degree of indirect or reserved control over a single term."

As you can imagine, much of the criticism from the dissent (as well as from employers in the media) is that the Board decision does not actually provide any employer with guidance as to what level of control would constitute joint-employer status. In addition, this broad expansion may result in consequences in other areas---how an employer may be held liable for safety violations or claims under other employee protection statutes. The Board attempts to tamp down these concerns by claiming that the purpose of the decision is only to "encourage the practice and procedure of collective bargaining." However, simply stating that purpose is not likely to stop the predicted ripples across the employment sphere. Unfortunately, the broad nature of the decision will make it extremely difficult for employers who want to avoid joint-employer liability to craft relationships with other companies that accomplish that goal.

In this unsettled landscape, what should an employer do to minimize the chances of being classified as a joint employer with one of its contractors? A first tip is to not confuse joint employer with "single employer." Under the single-employer doctrine, two ostensibly separate companies are treated as one--making a nonunion subsidiary liable for a union's subsidiary labor obligations. This analysis involves four factors: 1) interrelation of operation; 2) common management; 3) common ownership; and 4) centralized control over labor relations. Obviously, this doctrine applies to a much smaller set of situations.

With regard to the joint-employer classification shown in BFI, many employers may be faced with that set of circumstances. As opposed to the single-employer doctrine, the joint-employer standard may apply when two separate companies are not even related. Staffing companies and cleaning companies are two very obvious examples. Unfortunately, the language used by the NLRB in its decisions do not provide much guidance: "sharing or codetermining matters governing the essential terms and conditions of employees." In the past, that analysis seemed to focus on the ability to hire, fire and supervise. However, with the BFI decision, the NLRB has attempted to expand that analysis into areas of more indirect control.

Although the standard appears to be in flux, there are some general tips that may help an employer to distance itself from joint-employer liability. This list is not meant to be all-inclusive, but it should point to the type of thinking that is necessary to stay separate:

  1. Keep human resources and payroll functions separate and independent between the companies.
  2. Maintain separate lines of supervision for each company. Avoid direct control of employees of vendors or contractors.
  3. Do not comingle equipment and resources between the principal employer and contractor unless all of the exchanges of such are clearly accounted for in some business fashion.
  4. Do not have one company and its c-suite governing the operation of a second company.
  5. Maintain separate books and tax records between the companies.
  6. Keep brands and trade names separate.
  7. Beware the obvious (and easy for the NLRB to focus on); don't use the same telephone number and switchboard for both companies.
  8. Use contracts, subcontracts, and consulting contracts to maintain arm's length business obligations between the services of the companies. Specific language noting that the companies are not joint employers are not magic words that will automatically prevent liability, but they will help.
  9. Maintain confidentiality of trade secrets and bidding information.
  10. Keep union and nonunion workers for each company as far from each other as possible.

Considering that the BFI decision itself included a full section on the "evolution" of the joint-employer standard, it can be expected that the NLRB is not done with this doctrine. It will be interesting to see how employers will challenge this newly applied standard. Employers should keep their eyes on the decisions in the upcoming future.*

This article first appeared in JD Supra Perspectives on September 15, 2015.

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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