United States: Senate Panel Takes Up Joint Employer Issue

A week after a House subcommittee held a hearing on the National Labor Relations Board's new joint employer standard, it was the Senate's turn to address the aftermath of the Board's Browning-Ferris decision. In Browning-Ferris, the Board created a two-part test for determining joint employment for liability purposes under the National Labor Relations Act. Under this new standard, demonstrating an entity's "indirect control" or even its "unexercised potential to control" another entity's employees could establish joint employment.

Soon after the Board issued this decision, lawmakers in both Houses of Congress introduced the Protecting Local Business Opportunity Act (H.R. 3459, S. 2015). According to Sen. Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor and Pensions and chief sponsor of the Senate bill, this legislation would "roll back the NLRB's ruling and reaffirm that an employer must have actual, direct and immediate control over an employee to be considered a joint employer." Alexander said his bill has 45 co-sponsors in the Senate and 60 co-sponsors in the House of Representatives, including 3 Democrats.

Alexander said the Browning-Ferris decision will particularly impact the nation's 780,000 franchise businesses, which he claimed "create nearly 9 million jobs." He found the new "unexercised potential to control or indirect control" language from the decision particularly troubling. According to the Chairman:

Under the new joint employer definition, you no longer have to show direct control over operations. If you have a franchise agreement or contractual relationship depending on the industry, that's enough to show you have influence over working conditions.  . . .  It's hard for me to see how there could be any franchise in the country over which the franchisor would not have some unexercised potential to control or some indirect control. And if that is the case it seems to me the inevitable consequence of a decision like this to greatly reduce the number franchise opportunities in America.

A franchise owner and member of the Coalition to Save Local Businesses testifying at the hearing agreed.  Her concern was the "extreme uncertainty" the new standard places on franchise owners. The degree of "unexercised potential" or "indirect" control that would trigger liability is unclear.

The president and CEO of a home building company echoed this complaint. The new standard is "so vague and nonspecific," he claimed, that he was unsure if asking one of his contractors to bring extra staff to a job because of a weather delay would constitute sufficient control over the contractor's operations to render him a joint employer with the contractor. If this were indeed the case, he testified, the added logistics and administrative costs would put him out of business. He explained, "small companies don't have the legal resources to fight the NLRB, which means I go out of business, as do my subcontractors." 

An attorney witness testified that the "touchstone" of the NLRA is the right of employees as a group to decide whether they want union representation, or to deal with employers on an individual basis. It is therefore "fundamentally important" to identify who is the employer of any particular group of employees, he said.  In 1984, the Board adopted the "ordinary meaning" of what constitutes an employer – an entity that actually exercises direct and immediate control over the essential terms and conditions of employment. In Browning-Ferris, however, the Board "adopted a new standard that in reality is no standard at all," he said, adding that the Board also "failed to give guidance on how the nebulous standard will be applied."

The first part of the Board's two-part test is itself a multipart test. This common-law test, the witness explained, was developed to distinguish between employees and independent contractors; it does "very little" to help determine to which employer the employees belong. With respect to weighing the remaining factors of the test, the Board left that to its discretion or that of its general counsel, he said. As already noted by other witnesses, the ability to exercise potential or indirect control is an extremely vague test. According to one witness, this "inherently nebulous" control standard could conceivably be found "in every business relationship where one employer is providing goods and services to another."

With respect to collective bargaining, the new standard will add to the bargaining table employers that might have some interests in common, but will also have some competing interests, the witness explained. Such a result undermines the purpose of the NLRA, which was to provide stability in labor relations.

Sen. Alexander mentioned the Occupational Safety and Health Administration's recent internal memorandum that seemed to encourage investigators to determine whether a franchisor and franchisee could be considered joint employers for citation purposes. One panelist said this move was part of a "concerted effort by labor and its allies to hold incredible leverage over employers." The witness believed other agencies would similarly try to extend the NLRB's new standard to other areas of law to expand the scope of liability.

Ranking Member Patty Murray (D-WA), on the other hand, claimed that the Board's new standard "only clarifies" that if a company has substantial control over another's employees, it would be considered a joint employer under the NLRA. Other Democratic Senators also questioned whether the impact of the Browning-Ferris decision was as far-reaching as the witnesses claimed.

A complete list of panelists and links to their testimony can be found here.

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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