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The NLRB Giveth and Taketh Away: Joint Employer Standard Toughened, but Misclassification Cases Get New Remedy

October 17, 2018 Posted in Legal Updates Share

On September 14, 2018, the National Labor Relations Board (“NLRB”) published its proposed rule for determining joint-employer status. This proposed rule comes after years of flux within the NLRB and the courts on what constitutes a joint-employment relationship. The new rule as proposed is a welcome interpretation to employers. But, as is typically the case with the NLRB, the news is not all good. A recently published advice memorandum that has received very little attention seems to have created a cause of action where none was previously thought to exist.

The rules governing joint employment are meant to address situations where the working conditions of a group of employees are affected by two separate companies and to determine whether both companies are, effectively, the employer of a set of employees. The most common example of when the existence of a joint-employer relationship becomes an issue is in the context of a franchisor/franchisee relationship. Often, a franchisee has a much shallower pocket than the corporate franchisor, which gives the employee a financial incentive to implead the franchisor with the deeper pockets into the case. If the franchisor does not directly employ the employee on paper, a plaintiff may try to use a joint employment argument to hold the franchisor jointly and severally liable for any damages assessed in the case

Historically, the Board maintained a longstanding consensus regarding the joint-employer standard: two employers are a joint employer if they share or codetermine those matters governing the employees’ essential terms and conditions of employment. See Greyhound Corp., 153 NLRB 1488, 1495 (1965). Two types of evidence have been considered in this analysis – evidence of direct control and evidence of indirect control. From the issuance of the Greyhound Corp. opinion, courts wavered on the relevance of indirect control on another company in proving the existence of a joint employer relationship. But, from at least 1984-2015, evidence of indirect control was typically insufficient to prove that one company was the joint employer of another’s employees. Even direct and immediate supervision of another’s employees was insufficient where that supervision was “limited and routine,” defined as directing employees on what work to perform or when and where to perform it, but not the manner in which it should be performed. Flagstaff Medical Center, Inc., 357 NLRB 659, 667 (2011).

Over time, the Board began considering indirect control as more influential evidence to consider in making a joint employment decision. This shift culminated in the 2015 landmark decision Browning-Ferris, 362 NLRB No. 186. In Browning-Ferris, the Board overruled the longstanding precedent regarding the insufficiency of indirect control and held that it would no longer require proof that a joint employer has exercised any direct and immediate control over the essential working conditions of another company’s workers. Instead, under this new standard, a company could be deemed a joint employer even if its “control” over the essential working conditions was indirect, limited and routine, or reserved contractually even if never exercised. Id., slip op. at 15-16.

This relaxed standard was upheld for two years until, in December 2017, the Board decided Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (Dec. 14, 2017). The Hy-Brand majority overturned Browning-Ferris, reverting back to the long-held requirement that proof of the exercise of direct and immediate control neither limited nor routine was necessary to establish a joint-employer relationship. Id. However, that victory for employers was short lived, following the NLRB’s decision to vacate the Hy-Brand decision on February 26, 2018 due to an alleged conflict of interest by Board Member Emanuel who participated in the Hy-Brand decision. Fast forward to today and the new proposed rule, which arises out of the decision in Hy-Brand and the NLRB’s interest in maintaining predictability and consistency in determinations of joint-employer status by eliminating the speculative “indirect” control element from the analysis.

Under the new proposed rule, two entities may be found joint employers only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. More specifically, to be deemed a joint employer under the proposed regulation, an employer must possess and actually exercise 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. Additionally, the Board is “presently inclined to find, consistent with prior Board cases, that even a putative joint employer’s ‘direct and immediate’ control over employment terms may not give rise to a joint-employer relationship where that control is too limited in scope.” This is a complete turnaround from the standard established in Browning – Ferris. Under this new proposed rule, not only is indirect control insufficient but, in some cases, evidence of direct control will be deemed insufficient if that direct control is “too limited in scope.”

What appeared like a victory for employers, and a long-awaited change in pro-employee decisions from the NLRB, was potentially short lived thanks to a relatively hidden paragraph buried in one of the advice memorandums released by the NLRB on the same day as the proposed rule was published in the Federal Register for notice and comment.

In an advice memorandum released following a decision in Telemundo Television Studios, LLC, Case 12-CA-186493, the NLRB found that misclassifying employees as independent contractors “has and will operate as a restraint on, and interference with, the performers’ exercise of their Section 7 rights.” The Board recognized that it had never held an employer’s misclassification of statutory employees as independent contractors in itself constituted a violation of Section 8(a)(1). Unfortunately, very little else is discussed on that issue, as the remainder of the case engaged in analysis of the joint employment status between two corporate entities. But the Board seemed to believe that misclassifying employees as independent contractors could chill the ability of those employees to participate in collective bargaining and union activities sufficient to constitute a violation of Section 8(a)(1) and seems prepared to bring claims on that issue. This holding creates an entirely new interpretation of liability under Section 8(a)(1) with very little clarification or guidance from the NLRB.

Although the NLRB seemingly gave employers a break with the proposed rule on joint employment, they taketh with the other hand by creating a new potential area of liability for misclassifying employees as independent contractors. Employers should carefully analyze any independent contractor designations and consult an employment attorney with any questions on those designations.