NLRB Seeks to Change Joint Employer Test by Rulemaking

By:  Mark Trapp

On September 14, 2018, the National Labor Relations Board (“NLRB” or “Board”) published a Notice of Proposed Rulemaking (“Notice”). In its Notice, the Board states its belief that the “rulemaking will foster predictability and consistency regarding determinations of joint-employer status in a variety of business relationships.” At base, the Notice is an attempt to return the Board to its pre-2015 standard, which the Obama-era NLRB overruled in the controversial Browning-Ferris decision issued that year.

If enacted, the rules would provide a stronger degree of clarity and predictability to business owners and tighten the standard for finding one business to be a joint employer of another employer’s employees. Moreover, by enacting the standard through rulemaking, rather than adjudication, the NLRB decreases the likelihood of the standard being overturned by a later Board.

  1. Background

The determination of whether or not two separate businesses are joint-employers as to a group of employees can have very significant consequences for an employer. A business found to be a joint employer may be compelled to bargain with the union of the jointly-employed workers, and it can be held liable for any unfair labor practices committed by the other entity. It also has a huge impact on whether picketing directed at the business is lawful or not.

Under longstanding NLRB precedent, two employers could be joint employers if they shared or codetermined matters governing the employees’ essential terms and conditions of employment. Until 2015, to be a joint employer, a business had to exercise “direct and immediate” control over these employment matters. But in Browning-Ferris, the Obama Board overruled that standard, and substantially relaxed the standards for proving joint employment. Direct and immediate control was no longer necessary; even indirect, limited and routine, or contractually reserved but never exercised control over essential working conditions was sufficient.

Browning-Ferris touched off a large controversy in the business world, as employers argued that the new standard destabilized relationships and left businesses vulnerable to after the fact adjudication that it was the employer of another’s employees. In December 2017, a brief Republican majority overruled the Browning-Ferris decision, but the victory was short-lived due to the vacation of the ruling a few months later when it was found that one Board member should have recused himself.

This meant the Browning-Ferris standard remained in place, and employers remained in limbo – most employers seek only predictability and stability, and do not wish to be drawn into the employment-related issues (such as collective bargaining or unfair labor practices) of another business with whom they have a relationship, whether as franchisors, contractors or otherwise. The Notice makes clear that the new Republican-majority Board is serious about returning to and strengthening the pre- Browning-Ferris standard.

  1. The Notice and Its Potential Impact

Citing Supreme Court precedent, the Board avers that its Notice will provide unions and employers “greater certainty beforehand as to when they may proceed to reach decisions without fear of later evaluations labeling their conduct an unfair labor practice.” Indeed, the enactment of the proposed rule would appear to be a substantial victory for business interests, as it would return the Board to the higher standard prevailing before Browning-Ferris, while making it harder for any future board to overturn, as the NLRB may not disavow through adjudication a rule enacted through the rulemaking process. Moreover, in its substantive terms, the proposed rule would tighten the standard for finding joint employment.

To begin with, under the proposed rule, an employer “may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment.” In addition, the putative joint employer “must possess and actually exercise substantial direct and immediate control” over those terms and conditions. Indirect or contractually reserved but never exercised control will generally not establish control sufficient to make one a joint employer of another’s employees; nor will control of a limited and routine nature.

To flesh out the standard, the proposed rule also sets forth a dozen helpful examples, each pertaining to a common employment scenario. The examples each state clearly and unequivocally whether the arrangement set forth either does or does not constitute joint employment. If these or similar examples are enacted as part of the final rule, they will provide employers a strong degree of predictability currently lacking under the case-by-case adjudication of this issue.

In addition, the Notice avoids the ethical issue that caused the vacation of the first attempt to roll back Browning-Ferris. Although many disagree, in early 2018, the NLRB’s inspector general ruled that Board member William Emmanuel should have recused himself from the Hy-Brand decision which had overruled Browning-Ferris in December 2017. Because the Board applies different ethical standards to rulemaking than adjudication, the full Republican majority should be allowed to participate in the rulemaking process. Given the current 3-1 majority they enjoy, the Republicans should be able to enact a final rule without having to worry about the threat of forced recusal.

Rulemaking has other benefits. While it generally takes longer than typical adjudication, it allows for the full participation of all interested parties and should result in a broad-based rule governing many relationships and actions, as opposed to being limited to the facts of a single matter, as occurs in the Board’s usual case-by-case adjudication.

Finally, a rule enacted through rulemaking will be broader and more permanent than a decision made through adjudication. An enacted rule provides a solid basis on which employers can make business decisions and enter into relationships without the risk that their actions will later be second-guessed by a different Board majority. As the Board stated in its Notice: “employers, unions and employees will be able to plan their affairs free of the uncertainty that the legal regime may change on a moment’s notice (and possibly retroactively) through the adjudication process.”

Interested parties may submit comments in response to the Notice within 60 days of its publication, November 13, 2018. The Board must then review, evaluate and respond to all issues raised before enacting any final rule.

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