Recently, the National Labor Relations Board (NLRB) published a final rule that will fundamentally alter the definition of joint employment, making it more difficult for businesses to be held legally responsible for alleged labor law violations by staffing companies, franchisees and other related organizations. The rule will also limit the ability of employees from affiliated companies to join together to form unions.
Once the rule takes effect on April 27, an employer will only be considered a joint employer of a separate employer’s employees if the two employers co-determine the employees’ essential terms and conditions of employment, including wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not sporadic and isolated.
Below are the key things all restaurant employers must know about this critical development.
Brief History: Standard Has Flip-Flopped In Last Several Years
The dilemma involving this standard has taken many twists and turns. For more than 30 years, the NLRB had held that two companies would only be considered “joint employers”—equally responsible for certain labor and employment matters—if they shared or codetermined those matters governing the essential terms and conditions of employment and actually exercised the right to control.
However, in 2015, the NLRB retracted this test in the controversial Browning-Ferris decision, eliminating the requirement that the employer actually exercise control. Instead, the NLRB decided that businesses need only retain the contractual right to control to be considered a joint employer—even if they had never exercised it. Further, they held that indirect control (e.g., control through an intermediary) would be sufficient to establish joint employer status.
The standard briefly reverted to its previous form in December 2017, when the NLRB overturned Browning-Ferris in the Hy-Brand Industrial Contractors, Ltd. case. But just a few months later, the NLRB was forced to vacate that decision due to allegations that one of the Board members had a conflict of interest.
Given the uncertainty, NLRB Chairman John Ring spearheaded a regulatory solution by releasing a proposed rule addressing the joint employment standard in September 2018. Now, over a year later, that rule is set to be finalized.
New Standard: Share Or Co-determine Essential Terms Or Conditions
First and foremost, a business will only be considered a joint employer if it shares or codetermines the essential terms and conditions of employment over the workers of another business. The NLRB defines such terms and conditions as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.
Substantial Direct And Immediate Control
Moreover, there must exist evidence of “substantial direct and immediate” control of a term or condition as would warrant a finding that the business meaningfully affects matters relating to the employment relationship with those employees before a joint employer relationship can be found. To be “substantial,” it must have a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. The NLRB confirmed that control would not be substantial if only exercised on a “sporadic, isolated, or de minimis basis.”
The NLRB provided a summary of what such substantial control would look like – and what it would not look like—in specific circumstances:
Wages: A business would need to actually determine the wage rates, salary, or other rate of pay that is paid to another employer’s individual employees or job classifications to be found to be levying sufficient control to sustain a joint employment finding. Entering into a cost-plus contract (with or without a maximum reimbursable wage rate) will not suffice.
Benefits: Similarly, a business would need to actually determine the fringe benefits to be provided or offered to another employer’s employees. This includes selecting the benefit plans (such as health insurance plans and pension plans) for another employer’s employees. Permitting another employer, under an arm’s-length contract, to participate in its benefit plans will not suffice.
Hours of work. A business would need to actually determine work schedules, including overtime, of another employer’s employees in order to sustain a joint employment finding. Establishing an enterprise’s operating hours or when it needs the services provided by another employer will not trigger such a finding.
Hiring. A business would need to actually determine which employees will be hired and which will not. Requesting changes in staffing levels to accomplish tasks or setting minimal hiring standards such as those required by government regulation will not be enough.
Discharge. A business would need to actually decide to terminate the employment of another employer’s employee. Simply bringing misconduct or poor performance to the attention of another employer that makes the actual discharge decision, refusing to allow another employer’s employee to continue performing work under a contract, or setting minimal standards of performance or conduct will not suffice.
Discipline. A business would need to actually decide to suspend or otherwise discipline another employer’s employee. Bringing misconduct or poor performance to the attention of another employer that makes the actual disciplinary decision or by refusing to allow another employer’s employee to access its premises or perform work under a contract, would not cut it.
Supervision. A business would need to actually instruct another employer’s employees how to perform their work or actually issue employee performance appraisals in order to be found to be levying sufficient control. If its instructions are “limited and routine,” and consist primarily of telling another employer’s employees what work to perform, or where and when to perform the work, but not how to perform it, it will not be considered sufficient control.
Direction. Finally, a business would need to assign employees their individual work schedules, positions and tasks. Simply setting schedules for completion of a project or describing the work to be accomplished on a project will not be considered sufficient control.
Totality Of Circumstances
Next, the NLRB stated that joint employer status will be determined based on the “totality of the relevant facts” in each particular employment setting.
Certain Practices “Probative” But Not Necessarily Determinative
Certain common business practices will be considered “probative” of joint employer status, but only if they supplement and reinforce evidence of the business’s exercise of direct and immediate control over a particular essential term and condition of employment. They include:
evidence of “indirect control” over essential terms and conditions of employment of another employer’s employees;
the contractually reserved but never-exercised authority over the essential terms and conditions of employment of another employer’s employees; and
control over mandatory subjects of bargaining other than the essential terms and conditions of employment.
Burden Of Proof
Finally, in a welcome bit of news, the NLRB confirmed that the party alleging that a certain business is a joint employer has the burden of proof of making such a claim in any legal proceeding.
The impact of this new rule is obvious: fewer businesses will be found to be a joint employer by a court or agency when it comes to matters relating to labor relations. It will reduce the number of labor charges brought against businesses and should limit the success of broad-based union organizing efforts. You should immediately consult with your labor counsel to determine whether you should adjust any of your business practices to conform to this new standard. There may be opportunities for you to reformulate your model and revisit your interactions with staffing companies and other businesses—let alone their workers—in a way that would now pass muster under the NLRB’s new rule.
Note, however, that any changes you adopt must be coordinated in concert with the other new joint employment standard that was recently unveiled by the U.S. Department of Labor (USDOL). That test, slated to take effect on March 16, will soon be applied to wage and hour matters under the federal Fair Labor Standards Act (FLSA). While similar in nature, it does not exactly mirror the NLRB’s test. Further, the Equal Employment Opportunity Commission (EEOC) will soon release its own joint employment rule to govern civil rights law liability, and you will want to take that into consideration as well.
Steven M. Bernstein is the regional managing partner of national employment law firm Fisher Phillips’ Tampa office. He may be reached at firstname.lastname@example.org. John Polson is a partner in national employment law firm Fisher Phillips’ Irvine office. John may be reached at email@example.com.