Current State of Co-Employment / Joint Employer Doctrine 2019

Current State of Co-Employment / Joint Employer Doctrine 2019

What are the NLRB and DOL up to?

A lot has happened since I first wrote about the co-employment standard and the standard articulated in the Browning- Ferris Industries 362 NLRB No. 186 (2015) in 2015.  Businesses using contractors, third party vendors, and staffing firms have dealt with a shifting set of criteria from the National Labor Relations Board “NLRB” and case law in determining whether a worker is an employee or a contractor.  The Department of Labor “DOL” has proposed a new rule which adds some clarity to the issue. The importance of this should be obvious as all employers face liability issues associated with benefits, union recognition, unfair labor accusations, and bargaining issues. 

THE NLRB STANDARD (DOL’s STANDARD IS NEXT) 

Historically Before Browning-Ferris.

For 30 years the joint employer standard was that a joint employer relationship existed only where two separate entities share or co-determine those matters governing the essential terms and conditions of employment. To support such a finding, the Board required evidence that a putative joint employer meaningfully affect matters relating to the employment relationship and that its control over such matters was direct and immediate. 

Browning-Ferris Change 2015

The new standard announced by the Board in this case revised the standard to evaluate: (1) whether a common law employment relationship exists; and (2) whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.  The Board would no longer require direct and immediate control in order to establish joint employer relationships. It would rather consider reserved and indirect control such as through an intermediary or through contractual provisions that reserve the right to control – regardless if the right is exercised or not. 

Hy-Brand Change 2017

When Trump took office there was some turnover on the Board to a majority of Republicans.  So in 2017 the Board replaced the Browning-Ferris decision in Hy-Brand Industrial Contractors, Ltd. And Brandt Construction Co.with the previous standard. That test was based on common law which required a putative (main employer) to possess “direct and immediate” control over the essential terms and conditions of employment for employees from another business, and actually exercise joint control, rather than simply reserve the right to control. 

Hy-Brand Vacated in 2018 

In 2018, the Board vacated the Hy-Brand because the Agency’s Ethics Official found that one of the board members should have been disqualified from involvement in the Hy-Brand decision due to a conflict of interest concern. Thus, the Board reverted to the Browning-Ferris standard at that time as the ongoing precedent for Board determinations. 

September 14, 2018

The Board published a notice of proposed rulemaking regarding joint employer rules, which rule proposed to once again reverse the Browning-Ferris ruling. The proposal said employers will only be considered joint employers where the putative employer possesses and exercises “substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.”  The public comment period has now closed and the NLRB is expected to publish a final version of this rule in 2019.

Interesting Case Law

Curiously in Browning Ferris Indus. of Cal., Inc. v. NLRB, No. 16-1028 (D.C. Cir. Dec. 28, 2018) in a 2-1 decision, the U.S. Court of Appeals for the District of Columbia Circuit applied the Browning-Ferris standard even though the NLRB had issued its proposed rule. The Court considered both an employer’s unexercised “right to control” and evidence of indirect control over employee terms and conditions of employment. Of course it also considered direct control too.  The Court agreed under Browning-Ferris that the Board’s consideration of the “right to control” and “indirect control” factors was consistent with common-law agency principles.

The Court said it was not addressing the question of whether a “right to control” or indirect control, considered individually, could create a joint employer finding. Instead, it merely said the factors were relevant to some degree. 

The Court said it was appropriate for the Board to apply common-law agency principles when drafting its joint employer test because Congress intended common-law to dictate definitions of “employee” and “employer” under the NLRA. The Court then alluded to the belief both reserved control and indirect control were relevant to determining the existence of an employee/employer relationship. Nevertheless, the Court sent the case back to the NLRB to clarify the types of indirect control that factored into the Board’s analysis. 

The decision is interesting due to the Board’s pending proposed rule which seeks to return the standard to pre Browning-Ferris.  Remember, that previous rule only considered actual and direct control.  However, since the Court said the NLRB applied the Browning-Ferris standard vaguely, this may leave the door open for the NLRB to draft language which ultimately adds clarification and insight into its proposal to return to the pre Browning-Ferris standard. 

Accordingly, the Board’s Browning-Ferris test remains in place until there is further clarification from the Board on remand or in the rulemaking process.

THE DOL STANDARD

2019

Similar to the NLRB, the DOL has pivoted as well. It withdrew it’s 2016 guidance and on April 9, 2019 issued a proposed four part rule revising the joint employment regulations under the Fair Labor Standards Act (“FLSA”).  The test would consider an entity’s exercise of significant control over the terms and conditions of someone’s work rather than reserved control similar to what we see in the Browning-Ferris NLRB ruling. 

 Four Part Test

The DOL took its cue from the test established in Bonnette v. California Health & Welfare Agency, a Ninth Circuit decision.  The proposed rule is a four factor test analyzing whether the putative joint employer actually exercises the power to (1) hire or fire an employee; (2) supervise and control an employee’s work schedules or employment conditions; (3) determine an employee’s rate and method of pay; and (4) maintain a worker’s employment records.  Interestingly, the Bonnette decision looked at who had the power to hire; whereas the proposed rule looks at who actually hires. Again, like the proposed NLRB rule, this deletes the “right to control” as a factor to determine joint employer status. 

Note the revised standard applies only to potential joint employment relationships where the work performed by an employee for a main employer simultaneously benefits a second person or company. It does not address the scenario where an employee works for multiple employers during the same week, working separate hours for each entity. 

Irrelevant Factors

While adopting the new test, the DOL additionally spelled out certain factors it considers irrelevant to determining joint employer status. Specifically, it appears the business relationship entered into between the two parties would not in and of itself cause joint employer status.  For example, franchisor-franchisee status, third party relationships, vending relationships, contractor-subcontractor would all be examples. Additionally, other forms of indirect control wouldn’t suffice either. This would include, but is not limited to, providing handbooks or providing training to employees. 

Also irrelevant is the employee’s economic dependence on the putative employer. Three examples of such “irrelevant” economic dependence are where the employee (1) is in a specialty job or a job that requires special skills, initiative, judgment or foresight; (2) has the opportunity for profit or loss based on his or her managerial skill; and (3) invests in equipment or materials required to work or the employment of helpers. 

The DOL has referenced similar efforts by the NLRB to alter its analysis for determining joint employer status. The DOL has pronounced the newly proposed rule is to “promote certainty for employers and employees, reduce litigation, and encourage innovation in the economy.” The proposed rule is open for comment until June 10, 2019. 

RECONCILE NLRB AND DOL: CONCLUSION 

Both the NLRB and the DOL have exhibited interest in defining their standards to emphasize control. That’s no big secret. The question, and always will be, how much credence to give those areas that might be considered by some people to be direct and by others to be indirect. 

For instance, when dealing with payroll, a staffing firm may administer the payroll, but the putative employer may dictate the pay rate. This may be done in situations where staffing firms’ clients dictate the markup allowed on a bill rate. In effect, this action dictates the pay rate. Under that reasoning, a court may say both parties jointly employ the person. From a practical point of view, it just seems any court, or the NLRB, could find joint and several liability in practically any situation where an employee is working at one employer site while a second entity receives some sort of benefit for the service. My point: judges can advance any notion of justice they think is reasonable under each specific set of facts in a case.  If a judge wants to find control, he or she will find evidence of control to implement his or her sense of fairness. 

Even so, the main point is to stay out of litigation. From the government’s perspective, it’s pretty happy as long as an entity is paying the employer taxes. The consternation would likely come from the employees. These employees might like one company’s benefits over another’s. As long as one of the companies is supplying similar benefits (ie, health insurance, 401k), it’s unlikely the employees will have a strong case to go after the benefits of the other company. Nevertheless, as explained in a previous article, the client company can protect itself with a contractual provision which compels the staffing company to indemnify and hold harmless the client company against joint employer liability. Beyond that protection, and possible insurance protection to back it up, everyone is operating at their own risk. 

Andrew Marquardt 

This article is intended to inform and should not be taken as legal advice.