Joint Employer- NLRB
Regulatory Topic: Standard for Determining Joint-Employer Status
Regulatory Agency: National Labor Relations Board
For decades the National Labor Relations Board (NLRB) joint employer standard established that businesses are not joint employers unless they are found to exert direct and immediate control of employees of another business. The Obama NLRB created a major change to the joint employer standard in 2015 (Browning-Ferris) to force more businesses into joint employer relationships, but this was removed by the Trump NLRB in 2017, returning determinations to prior considerations.
On September 7, 2022, the Biden NLRB proposed a new rule that would vastly expand joint employer liability even beyond the controversial Obama rule, designating joint employer status on businesses who merely show evidence of reserved (unused) and/or indirect control. Public comments for this rule can be submitted through December 7, 2022.
Through this new NLRB rule, destructive legislation like the PRO Act, and through the rescinding of a Department of Labor (DOL) rule that added improved clarity and opportunity for small businesses, the Biden administration is pushing an agenda to drastically undermine small businesses across America who utilize relationships with other businesses including those operating as franchises and vendors.
Note: The U.S. Department of Labor also utilizes a joint employer standard.
The NLRB, formed as part of the 1935 National Labor Relations Act (NLRA), oversees private sector union elections and related matters across the United States. By using labor cases brought before the board or advancing new rules, the NLRB can attempt to enforce new policies that American workers and businesses must comply with, including by modifying joint employer standards that govern business relationships.
As succinctly summarized by the Society for Human Resource Management (SHRM), a joint employer determination by the NLRB means that “if two entities are joint employers under the National Labor Relations Act (NLRA), both must bargain with the union that represents the jointly employed workers, both are potentially liable for unfair labor practices committed by the other, and both are subject to union picketing or other economic pressure if there is a labor dispute.”
In other words, small businesses that form mutually beneficial relationships can be unwillingly intertwined with those separate businesses by the NLRB, creating a confusing and destructive tangle of legal requirements that undermine both businesses and may even lead to smaller businesses being disbanded or absorbed into larger ones.
What does it mean to be a “joint employer” under the NLRB right now, and what will change if the new NLRB rule is implemented?
The current NLRB joint employer standard, implemented by the Trump NLRB in 2017, largely reinstated court interpretations dating back to the 1984 TLI, Inc. and Laerco Transportation cases (see timeline below) that governed NLRB joint employer decisions for decades. Overruling the Obama NLRB 2015 Browning-Ferris decision, the NLRB indicated that “proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.” More specifically, the Board clarified that “two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine.”
The Biden NLRB, however, is proposing a similar but even broader rule than the 2015 Browning-Ferris decision, meaning many additional businesses relationships could be determined as joint employer situations by the NLRB. If implemented, the NLRB would be able to establish a joint employer status “with evidence of indirect and reserved forms of control, so long as those forms of control bear on employees’ essential terms and conditions of employment.” The rule would also expand the interpretation of “essential terms” of employment to be open-ended well beyond just “wages, benefits, and other compensation; hours of work and scheduling; hiring and discharge; discipline; workplace health and safety; supervision; assignment; and work rules and directions governing the manner, means, or methods of work performance,” also arguing essential terms “extend to nearly every aspect of employees’ terms and conditions of employment.”
In considering whether a business controls enough aspects of employees from another business, the new rule would also allow for an open approach to whether its aspects of control would amount to “meaningful collective bargaining” if those terms were bargained over, giving the NLRB further ability to declare a business a joint employer.
What businesses are affected by joint employer standards, and why is this important?
Across the United States, millions of businesses engage in mutually beneficial relationships with other businesses to achieve success. To provide just some examples, this includes over 750,000 franchises such as restaurants, gas stations, hair salons, hotels, tax firms, real estate agencies, health care providers, auto shops, and fitness centers. It also includes construction contractors and subcontractors, staffing agencies, janitorial services, IT services, data entry, technicians, manufacturers, and many other businesses that provide vendor and contracting services.
Looking at franchise businesses alone, the U.S. Census Bureau found that in 2017 across nearly 300 industries, franchising businesses accounted for over $1.7 trillion in sales and revenue. Furthermore, in 2021 over 8 million people were employed by franchise businesses.
The costs of expanded joint employer liability on franchise businesses are considerable. One study estimated that the impact of the 2015 Obama NLRB’s Browning-Ferris standard was leading to $33.3 billion in lost revenue annually and a loss of 376,000 job opportunities. Combined with millions of other business relationships scrutinized for joint employer status by federal agencies, aggressive joint employer standards could be enormously costly and jeopardize many businesses across America.
Brief NLRB and Congressional Joint Employer Timeline:
- 1965-1966 (NLRB) – Greyhound Corp., 153 NLRB 1488 (1965), enfd. 368 F.2d 776 (5th Cir. 1966). In this case the NLRB found and later the Fifth Circuit Court of Appeals accepted that joint employer relationships could be determined when businesses “share[d], or codetermine[d], those matters governing essential terms and conditions of employment.”
- 1984 (NLRB) – TLI, Inc., 271 NLRB 798 (1984) – The NLRB through this case turned attention on direct and “actual” control over employees.
- 1984 (NLRB) – Laerco Transportation, 269 NLRB 324 (1984). In this case, the NLRB identified that “limited” and “routine” types of interactions/exercised control were not grounds for imposing joint employer status on businesses.
- 2002 (NLRB) – Airborne Express, 338 NLRB No. 72 (2002). In this case, the NLRB further solidified a focus on direct and immediate control in its joint employer decisions.
- 2007 (NLRB) – AM Property Holding Corp., 350 NLRB 998 (2007).
- 2015 (NLRB) – Browning-Ferris Industries of California, 362 NLRB 186 (2015). In this ruling, the Obama era NLRB established a new joint employer standard where “indirect” control, and even appearing to reserve the right to control aspects of a business, were sufficient grounds to determine a joint employer relationship between businesses.
- 2017 (NLRB) – The Trump era NLRB overruled the 2015 Browning-Ferris decision, reinstating the prior longstanding standard. In particular, the board clarified that “proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.”
- 2021 (Congress) – The PRO Act passed the U.S. House in March 2021. The Biden administration and many Democratic leaders are strong supporters of this legislation, which would implement a number of major pro union policy changes including a damaging joint-employer standard akin to the Obama era Browning-Ferris standard.
- 2021 (Congress) – The Save Local Business Act, 1636 and H.R. 3185, ntroduced in May 2021, would institute a permanent joint employer standard under the NLRA and Fair Labor Standards Act (FLSA) that would prevent regulatory agencies from implementing harmful joint employer standards that threaten the independence of businesses. Joint employment would be assigned to a business “only if each employer directly, actually, and immediately, exercises significant control over the essential terms and conditions of employment of the employees of the other employer, such as hiring such employees, discharging such employees, determining the rate of pay and benefits of such employees, supervising such employees on a day-to-day basis, assigning such employees a work schedule, position, or task, or disciplining such employees.”
- Proposed Joint Employer Rule May Increase Employer Liability. https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/nlrb-joint-employer-proposed-rule-2022.aspx
- Keeping the American Dream Alive: The Challenge to Create Jobs Under the NLRB’s New Joint Employer Standard. https://www.heritage.org/testimony/keeping-the-american-dream-alive-the-challenge-create-jobs-under-the-nlrbs-new-joint
- Main Street in Jeopardy. The Expanding Joint Employer Threat to Small Businesses. https://www.uschamber.com/assets/documents/uschamber_ifa_joint_employer_standard_report.pdf
- Opportunity at Risk A New Joint-Employer Standard and the Threat to Small Business. https://www.uschamber.com/assets/archived/images/documents/files/joint_employer_standard_final_0.pdf
- The Economic Impact of an Expanded Joint Employer Standard. https://www.franchise.org/sites/default/files/2019-05/JE%20Econ%20Impact%200128.pdf
- FAQ: Joint Employer Standard. https://cei.org/faq-joint-employer-standard/
- How will the Save Local Business Act help small businesses? https://americansforprosperity.org/save-local-business-act/
- Double whammy: PRO Act legislation imperils the franchise industry via two onerous provisions. https://americansforprosperity.org/how-the-pro-act-hurts-the-franchise-industry/