On Feb. 25, the National Labor Relations Board ("NLRB") released its new standard for determining whether workers can be considered employees of multiple businesses as “joint employers.” This new test, which takes effect on April 27, reestablishes an earlier, longstanding standard to determine employer responsibilities as to union representation, collective bargaining, and other rights and protections afforded under the National Labor Relations Act (“NLRA”).
The joint employer standard is important for businesses utilizing franchisee business models, as well as temporary or other workers engaged through third-party staffing agencies. Depending upon the type of right asserted and laws involved, there are several different legal tests used to determine whether a “joint employment” relationship exists. Even more
challenging, the standards under these varying laws have been in flux in recent years as regulatory agencies and courts have differed as to employer responsibilities.
In August 2015, the Obama-era NLRB jettisoned a standard that had existed for almost 30 years as to joint employment and adopted a looser, more pro-employee standard in Browning-Ferris Industries of California, Inc. The prior test – which focused on whether a franchisor or a business utilizing a temp agency actually exercised control or supervision over those workers – was replaced by a standard that turned on a company’s indirect control over employees. The NLRB held that “indirect” or "reserved” control, such as that typically formed by contract, would be enough to establish joint employment obligations, even if that control was never actually exercised. The Browning-Ferris standard raised concerns due to its nebulous, speculative standard and real possibility for increased obligations and liability.
This new rule from the NLRB overturns the Browning-Ferris test and returns
to the pre-Obama-era standard. Under the reinstated standard, a company can only be considered a joint employer if it exercises “substantial direct and immediate control” over the terms and conditions of workers’ employment. The relevant terms and conditions of employment include benefits, wages, hours, hiring, termination, discipline, direction and the ability to supervise. As the standard now again focuses on actual control, common contractual provisions in a staffing agreement reserving control or supervision that is rarely exercised are no longer dispositive or controlling.
The NLRB’s new standard is important because, in union organizing efforts, it reduces the likelihood that franchisors and companies relying on staffing arrangements will be required
to engage in the bargaining process as a joint employer. Moreover, it would seem that they will be less likely to face other challenges under the NLRB such as unfair labor practices and claims of retaliation.
Other laws have their own separate tests for determining joint employment. In January, the U.S. Department of Labor (“DOL”) released a final ruling setting forth a new test for determining joint employer status under the Fair Labor Standards Act ("FLSA"), which governs federal wage and hour claims. The new test will go into effect March 16. Like the new NLRB standard, the new FLSA test focuses on actual exercise of control, rather than indirect or reserved control. Under the FLSA standard, a four-factor balancing test is utilized to assess whether two companies are joint
employers. The factors of this test are whether the possible employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s right and method of payment; and (4) maintains the employee’s employment records. No single factor is dispositive, according to the DOL, and most franchisors do not engage in any of these practices.
Finally, the U.S. Equal Employment Opportunity Commission (“EEOC”) announced in November 2019 that it will reveal its own joint employer test that will apply to a variety of federal anti-discrimination laws, including Title VII and the ADEA. It is safe to assume that the EEOC’s test, when it is announced, will continue to focus on an
employer’s actual control of an employee alleging violation of federal laws protecting against discrimination and/or retaliation.
Employers should recognize that state laws governing wage/hour issues, unemployment, discrimination, workers’ compensation and payroll taxes often have their own, varying standards as to who is an “employer” for the purposes of the law (and as to who is an “employee,” implicating varying standards relative to “independent contractors”). Thus, while the standard relative to “joint employment” for purposes of various federal laws is certainly trending in employers’ favor, business should be mindful of the entire landscape here relative to employer obligations.