Rule Would Return To Direct and Immediate Control Test, But Adds New Requirement That Such Control Be “Substantial”

On September 14, 2018, the National Labor Relations Board (“NLRB” or the “Board”) published in the Federal Register a Notice of Proposed Rulemaking (“Notice”) proposing a new rule to be applied by the NLRB to determine whether an employer may be considered a joint employer of a separate employer’s employees.  This development is the latest in the ongoing joint employer saga before the NLRB.

As explained in the NPR, “whether one business is the joint employer of another business’s employees is one of the most important issues in labor law today.”  The Board notes that “there are myriad relationships between employers and their business partners,” and that “[a] determination by the Board regarding whether two separate businesses constitute a ‘joint employer’ as to a group of employees has significant consequences for the businesses, unions, and employees alike,” as when a joint-employer relationship is found to exist, the Board “may compel the joint employer to bargain in good faith with a Board-certified or voluntarily recognized bargaining representative of the jointly-employed workers,” the Board may find joint employers “jointly and severally liable for unfair labor practices committed by the other,” and a “finding of joint-employer status may determine whether picketing directed at a particular business is primary and lawful, or secondary and unlawful.”

All along, the starting point for any finding of a joint employer relationship has been that the two employers must “share or codetermine those matters governing the employees’ essential terms and conditions of employment.”  But for more than 30 years, simply possessing the right to codetermine employees’ terms and conditions of employment was not by itself sufficient to support a joint employer determination.  Rather, the “essential element” was whether the putative joint employer’s control over the employees’ terms and conditions of employment was “direct and immediate.”

That changed in mid-2015 when a majority of Democrat-appointed NLRB members ruled – over the dissent of the two Republican-appointed Board members – in Browning-Ferris Industries that if a putative joint employer possesses the ability to control employees’ terms and conditions of employment, even if only indirectly, and even if not actually exercised, that is sufficient to support a joint employer finding.  As we discussed, Browning-Ferris opened the door for joint employer findings based on nebulous concepts of “overall circumstances” and “industrial realities,” and portended significant impacts to many industries, in particular, in context of temporary and contract labor, and in franchisor-franchisee relationships.

Following the 2016 presidential election, the political makeup of the NLRB changed, with a new majority of Board members being Republican appointees.  To no great surprise, when the opportunity to revise the joint employer standard came up, this new majority took on the issue.  The Board majority’s ruling in late 2017 in Hy-Brand Industrial Contractors unwound the Browning-Ferris decision, and essentially adopted the dissents in from that case to return to the NLRB’s prior, long-standing standard that requires an employer to actually exercise direct and immediate control over employees’ terms and conditions of employment to be found to be a joint employer of those employees with another employer.

The validity of the Hy-Brand decision, however, was short-lived.  In February 2018, the NLRB vacated Hy-Brand based on the conclusion that one of the Republican-appointed Board members in the majority decision in that case should have been disqualified from participating in the case due to a conflict of interest.  As we discussed in our blog post on this development, the result of the Board’s vacating Hy-Brand was, at least technically speaking, to resurrect the indirect control test from Browning-Ferris.

The Board’s Notice of Proposed Rulemaking now seeks to cement the applicable standard by rule, rather than through precedent which, as seen in the back-and-forth discussed above, is subject to being changed based on changes in political affiliations within the NLRB.  The rule proposed by the NLRB majority (over the current lone Democrat-appointed member (one Board Member seat is presently vacant)) would permit a finding that an employer is 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, such as hiring, firing, discipline, supervision, and direction” and if the putative joint employer “possess[es] and actually exercise[s] substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine” (emphasis added).  Interestingly, although the Board’s prior standard and Browning-Ferris required direct and immediate control, the insertion of the word “substantial” before “direct and immediate control” is new, and is sure to raise questions.

Comments may be submitted in response to the Notice of Proposed Rulemaking until November 13, 2018.  It is a foregone conclusion that the employer and business community will support the proposed rule, which employee and labor groups will vigorously oppose.  We will keep you updated with developments.