Problems with the New Test for Joint-Employer Status

The New Joint Employer Standard

Under Laerco Transportation, 269 NLRB 324 (1984), and TLI, Inc., 271 NLRB 798 (2984), and their progeny (Airborne Express, 338 NLRB 597 (2002), and AM Property Holding Corp., 350 NLRB 998 (2007)), an entity could not be considered a joint employer with a primary employer unless it exercised direct and immediate control in co-determining a workforce's essential terms and conditions of employment, such as hiring, firing, discipline and supervision. Retaining potential control over the workers' employment was not enough; an alleged joint employer had to assert actual control over the other employer's workers to be found a joint employer. Moreover, even direct control exercised in a “limited and routine” manner ' such as scheduling and determining the amount of workers to be supplied ' was not indicative of joint-employer status.

Not anymore. In Browning-Ferris, the NLRB decided that merely reserving the right to control another employer's workers or exercising that right indirectly could render a business a joint employer. More specifically, under the new Browning-Ferris test, two entities will be deemed joint employers ' meaning they “share or co-determine those matters governing the essential terms and conditions of employment” ' if: 1) there is a common-law employment relationship with the employees; and 2) “the putative joint employer possesses sufficient control over employees' essential terms and conditions of employment to permit meaningful collective bargaining.”

To that end, proof that control is actually exercised over another employer's workers is no longer required. “Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.” Thus, the NLRB explicitly overturned a “direct and immediate control” requirement. Instead, “control exercised indirectly ' such as through an intermediary” and even over “limited and routine” matters ' as opposed to hiring, firing, discipline, supervision and direction ' may establish joint-employer status.

Application of the New Standard in Browning- Ferris

In Browning-Ferris , the primary employer, Leadpoint, supplied labor to BFI Newby Island Recyclery (BFI), which employed approximately 60 of its own workers. Thus, the case's facts were similar to a staffing agency situation. Applying its new test, the NLRB determined that BFI was a joint employer to Leadpoint's employees based on the following:

• Hiring, Firing and Discipline: The contract between BFI and Leadpoint gave BFI control of hiring and firing because it required Leadpoint to apply BFI's hiring standards, required applicants to pass drug tests, and proscribed hiring workers deemed ineligible by BFI. Moreover, the NLRB cited two instances where BFI officials requested the termination of Leadpoint employees.
• Supervision, Hours and Direction of Work: According to the NLRB, BFI controlled the pace of work of Leadpoint's workers, assigned tasks and oversaw work performance. Additionally, BFI specified the number of workers required, dictated the timing of shifts and decided when overtime was necessary.
• Wages: The majority determined that BFI played “a significant role in determining employees' wages” in that, pursuant to the parties' contract, BFI prohibits Leadpoint from paying its employees more than BFI employees performing comparable work.

The Majority's Basis for Changing the Standard and The Dissent

The majority couched its decision in the common-law standard for joint employer status and justified the change in precedent on “changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships.” According to the majority, the NLRB's “direct and immediate control” requirement and refusal to find joint employer status where control was exercised in only a “limited and routine” manner, “significantly and unjustifiably narrow the circumstances where a joint-employment relationship can be found,” thus “undermin[ing] the core protections of the [National Labor Relations] Act for the employees impacted by these economic changes.”

As to the common-law standard, the majority held that the NLRB's additional requirements for finding joint-employer status ' i.e., actual “direct and immediate” control in more than a “limited and routine manner” ' were inconsistent with common-law principles as stated in the Restatement (Second) of Agency, which holds that a master/servant relationship may be established through “control or right to control.”

The dissent disagreed, citing decades of case law as well as the Restatement (Second) of Agency as evidence that the common-law joint-employer test requires evidence of direct and immediate control.

Furthermore, the dissent disputed the majority's claim that prior to Laerco and TLI , the NLRB's “traditional” test for joint-employer status encompassed more factors, “including those related to indirect control and reserved contractual control.” Indeed, the dissent pointed to several pre-1984 decisions in which the NLRB did not deem the reserved right to control different conditions of employment as indicative of joint-employer status. Moreover, the dissent pointed out that the cases cited by the majority for the proposition that indirect control may suffice to establish joint-employer status, in fact, turned on evidence of direct control.

The dissent then argued that the majority's new multifactor test ' “in which any degree of indirect or reserved control over a single term is probative and may suffice to establish joint-employer status” ' is “fatally ambiguous” and lacks guidelines for its application. Further, the dissent articulated four adverse practical consequences resulting from the new test.

First, the more expansive test will de-stabilize collective bargaining by expanding collective bargaining obligations to a multitude of entities with divergent interests.

Second, more users of supplied labor will be found to be joint employers under the more expansive test, thereby inhibiting user employers from terminating their relationships with unionized suppliers absent bargaining and/or impasse. This will in turn encourage users to avoid any unionized supplier-employer. Moreover, a new supplier would be beholden to the unionized supplier's terms of employment, which would inhibit competition.

Third, the test threatens to ensnare franchisors as joint employers. Previously, the NLRB has not found franchisors to be joint employers where the franchisor only indirectly controls employee working conditions as part of an effort to ensure the quality of their product/brand. However, “[g]iven the breadth of the majority's test and rationale, we are concerned that the majority effectively finds that a franchisor even with this type of indirect control would be deemed a joint employer.” To that end, the NLRB's general counsel is currently seeking to hold McDonald's to be a joint employer with its franchise operators.

Finally, whereas the NLRB has “honored” “corporate separateness,” the new test “undermines the parent-subsidiary relationship” in that the new “'potential control standard' would treat parents and subsidiaries as joint-employing entities for purposes of labor law.”

The majority deemed the problems articulated by the dissent a “law-school-exam hypothetical of doomsday scenarios” and “an exaggeration of the challenges that can sometimes arise when multiple employers are required to engage in collective bargaining. The potential for these types of challenges to arise has existed for as long as the Board has recognized the joint-employer concept.”

Time will tell whether the dissent's or the majority's assessment of the new standard is more accurate.

Matthew R. Porio is an attorney with Fox Rothschild in Roseland, NJ. He focuses his practice on representing management clients on issues of labor relations, employment discrimination and wrongful termination. This article also appeared in the New Jersey Law Journal, an ALM affiliate publication of this newsletter.

This past summer, the National Labor Relations Board (NLRB) reversed over 30 years of precedent and adopted a new, more expansive and ambiguous standard for determining joint employer status. (See Molly Kaban, Raymond Lynch: “The NLRB Joint Employers Ruling,” Employment Law Strategist, November 2015.) The new standard promises to entangle businesses with only tenuous links to another employer's workforce in a morass of collective-bargaining obligations and unfair labor practice liability for workforces over which they exercise no actual control.

The new test for joint-employer status articulated in Browning-Ferris Industries, 362 NLRB No. 186 (2015), “has dramatic implications for labor relations policy and its effect on the economy,” Board members Miscimarra and Johnson wrote in a 28-page dissent, attacking the majority's logic and highlighting the problems the new standard is sure to create for employers and for the collective bargaining process itself. The dissent stated:

The majority's new test represents a major unexplained departure from precedent. This test promises to effect a sea change in labor relations and business relationships. Our colleagues presumably do not intend that every business relationship necessarily entails the joint employment of every entity's employees, but there is no limiting principle in their open-ended multifactor standard. It is an analytical grab bag from which any scrap of evidence regarding indirect control or incidental collaboration as to any aspect of work may suffice to prove that multiple entities ' whether they number two or two dozen ' “share or co-determine essential terms and conditions of employment.”

The New Joint Employer Standard

Under Laerco Transportation, 269 NLRB 324 (1984), and TLI, Inc., 271 NLRB 798 (2984), and their progeny (Airborne Express, 338 NLRB 597 (2002), and AM Property Holding Corp., 350 NLRB 998 (2007)), an entity could not be considered a joint employer with a primary employer unless it exercised direct and immediate control in co-determining a workforce's essential terms and conditions of employment, such as hiring, firing, discipline and supervision. Retaining potential control over the workers' employment was not enough; an alleged joint employer had to assert actual control over the other employer's workers to be found a joint employer. Moreover, even direct control exercised in a “limited and routine” manner ' such as scheduling and determining the amount of workers to be supplied ' was not indicative of joint-employer status.

Not anymore. In Browning-Ferris, the NLRB decided that merely reserving the right to control another employer's workers or exercising that right indirectly could render a business a joint employer. More specifically, under the new Browning-Ferris test, two entities will be deemed joint employers ' meaning they “share or co-determine those matters governing the essential terms and conditions of employment” ' if: 1) there is a common-law employment relationship with the employees; and 2) “the putative joint employer possesses sufficient control over employees' essential terms and conditions of employment to permit meaningful collective bargaining.”

To that end, proof that control is actually exercised over another employer's workers is no longer required. “Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.” Thus, the NLRB explicitly overturned a “direct and immediate control” requirement. Instead, “control exercised indirectly ' such as through an intermediary” and even over “limited and routine” matters ' as opposed to hiring, firing, discipline, supervision and direction ' may establish joint-employer status.

Application of the New Standard in Browning- Ferris

In Browning-Ferris , the primary employer, Leadpoint, supplied labor to BFI Newby Island Recyclery (BFI), which employed approximately 60 of its own workers. Thus, the case's facts were similar to a staffing agency situation. Applying its new test, the NLRB determined that BFI was a joint employer to Leadpoint's employees based on the following:

• Hiring, Firing and Discipline: The contract between BFI and Leadpoint gave BFI control of hiring and firing because it required Leadpoint to apply BFI's hiring standards, required applicants to pass drug tests, and proscribed hiring workers deemed ineligible by BFI. Moreover, the NLRB cited two instances where BFI officials requested the termination of Leadpoint employees.
• Supervision, Hours and Direction of Work: According to the NLRB, BFI controlled the pace of work of Leadpoint's workers, assigned tasks and oversaw work performance. Additionally, BFI specified the number of workers required, dictated the timing of shifts and decided when overtime was necessary.
• Wages: The majority determined that BFI played “a significant role in determining employees' wages” in that, pursuant to the parties' contract, BFI prohibits Leadpoint from paying its employees more than BFI employees performing comparable work.

The Majority's Basis for Changing the Standard and The Dissent

The majority couched its decision in the common-law standard for joint employer status and justified the change in precedent on “changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships.” According to the majority, the NLRB's “direct and immediate control” requirement and refusal to find joint employer status where control was exercised in only a “limited and routine” manner, “significantly and unjustifiably narrow the circumstances where a joint-employment relationship can be found,” thus “undermin[ing] the core protections of the [National Labor Relations] Act for the employees impacted by these economic changes.”

As to the common-law standard, the majority held that the NLRB's additional requirements for finding joint-employer status ' i.e., actual “direct and immediate” control in more than a “limited and routine manner” ' were inconsistent with common-law principles as stated in the Restatement (Second) of Agency, which holds that a master/servant relationship may be established through “control or right to control.”

The dissent disagreed, citing decades of case law as well as the Restatement (Second) of Agency as evidence that the common-law joint-employer test requires evidence of direct and immediate control.

Furthermore, the dissent disputed the majority's claim that prior to Laerco and TLI , the NLRB's “traditional” test for joint-employer status encompassed more factors, “including those related to indirect control and reserved contractual control.” Indeed, the dissent pointed to several pre-1984 decisions in which the NLRB did not deem the reserved right to control different conditions of employment as indicative of joint-employer status. Moreover, the dissent pointed out that the cases cited by the majority for the proposition that indirect control may suffice to establish joint-employer status, in fact, turned on evidence of direct control.

The dissent then argued that the majority's new multifactor test ' “in which any degree of indirect or reserved control over a single term is probative and may suffice to establish joint-employer status” ' is “fatally ambiguous” and lacks guidelines for its application. Further, the dissent articulated four adverse practical consequences resulting from the new test.

First, the more expansive test will de-stabilize collective bargaining by expanding collective bargaining obligations to a multitude of entities with divergent interests.

Second, more users of supplied labor will be found to be joint employers under the more expansive test, thereby inhibiting user employers from terminating their relationships with unionized suppliers absent bargaining and/or impasse. This will in turn encourage users to avoid any unionized supplier-employer. Moreover, a new supplier would be beholden to the unionized supplier's terms of employment, which would inhibit competition.

Third, the test threatens to ensnare franchisors as joint employers. Previously, the NLRB has not found franchisors to be joint employers where the franchisor only indirectly controls employee working conditions as part of an effort to ensure the quality of their product/brand. However, “[g]iven the breadth of the majority's test and rationale, we are concerned that the majority effectively finds that a franchisor even with this type of indirect control would be deemed a joint employer.” To that end, the NLRB's general counsel is currently seeking to hold McDonald's to be a joint employer with its franchise operators.

Finally, whereas the NLRB has “honored” “corporate separateness,” the new test “undermines the parent-subsidiary relationship” in that the new “'potential control standard' would treat parents and subsidiaries as joint-employing entities for purposes of labor law.”

The majority deemed the problems articulated by the dissent a “law-school-exam hypothetical of doomsday scenarios” and “an exaggeration of the challenges that can sometimes arise when multiple employers are required to engage in collective bargaining. The potential for these types of challenges to arise has existed for as long as the Board has recognized the joint-employer concept.”

Time will tell whether the dissent's or the majority's assessment of the new standard is more accurate.

Matthew R. Porio is an attorney with Fox Rothschild in Roseland, NJ. He focuses his practice on representing management clients on issues of labor relations, employment discrimination and wrongful termination. This article also appeared in the New Jersey Law Journal, an ALM affiliate publication of this newsletter.