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    Understanding the NLRB’s Reversal on Joint Employers

  • It all comes down to a fundamental question at the core of all labor and employment law cases: who is an employer?

    How will the shift affect your restaurant franchise?

    In order to understand the National Labor Relations Board, you must first know that it is a political body whose majority shares the president’s political persuasion. As a result, until the U.S. Supreme Court rules on a labor law issue, tracking board precedent can be a lot like watching a tennis match: precedents are routinely lobbed from one side of the court back to another every time an administration changes.

    The first year of the Trump Administration has been no different. As vacant board seats began to get filled by Trump appointees, one by one, Obama-era precedents began to fall. The most significant of those changes involved a fundamental question at the core of all labor and employment law cases: who is an employer. The issue seems simple enough and, to be sure, in many cases it is. But the waters get muddied when the issue turns to the doctrine of joint employment, namely when more than one company is responsible for dictating the terms of an individual’s employment.

    Traditionally, joint employer cases arise with staffing agencies or franchises. McDonald’s recently made headlines when an administrative law judge from the Obama-era board held the parent corporation to be a joint employer of workers at franchised restaurants all around the country. The potential of that adverse decision was significant enough to McDonald’s that it listed widespread joint employer litigation as a risk factor in 2015 securities filings.

    Employers—and especially franchisors—breathed a sigh of relief after reading the board’s recent 3-2 decision in Hy-Brand Industrial Contractors, Ltd., a decision, which dramatically narrowed the situations where the joint employer doctrine could be applied. Before 2015, the board required employees seeking to invoke the joint employer doctrine that each employer “directly and immediately” exercised control over the terms and conditions of employment of the workers at issue. That standard proved tricky for employees and their advocates, as decisions involving pay and discipline were often much more indirect than the standard required.

    In 2015, the Obama board decided Browning-Ferris Industries, a decision which substantially reduced the burden for employees. Rather than requiring proof of direct and immediate control, the Obama board allowed for “indirect” control over wages and other terms of employment.  More importantly, the board found that actual control was not required; it was sufficient if a separate company reserved itself the right to control terms of employment.

    Browning-Ferris marked a significant departure in board precedent because it opened the doors to franchisors with deep pockets like McDonald’s. Indeed, labor unions led the fight for a $15 minimum hourly wage at fast food restaurants based in part on the promise that Browning-Ferris would open the doors to organized labor at those restaurants.

    The Trump board’s Hy-Brand decision dashed those hopes. In a party-line 3-2 decision, it quickly reversed course and found that in all future and pending cases, the board will only consider two companies to be joint employers if there is proof that one entity has actually exercised control over “essential employment terms” of another entity’s employees. No longer will proof of indirect control or the potential exercise of control suffice, as it did under Browning-Ferris

    There are two important caveats. First, the board signaled some willingness to find joint employment by holding that the two companies at issue in this case met that higher standard. It did so because, among other things: One, the two companies shared workplace rules; two, they jointly administered payroll and benefits and employees of both received the same benefits; three, their employees attended an annual meeting together; four, one person made hiring and firing decisions for both. Because of that, both companies were responsible for the unlawful termination of striking employees.

    The second caveat, ever-present, is that the tennis match between boards of different political persuasions always continues unless and until the Supreme Court rules on an issue. Here is no reason why a future board dominated by appointees of a Democratic president could not overrule Hy-Brand.

    It also bears noting that the 2015 Browning-Ferris decision is currently before the U.S. Court of Appeals for the District of Columbia Circuit, although the board has asked it to remand the decision. The D.C. Circuit is available to hear the appeal of any board decision, so if it were to uphold the Browning-Ferris standard, it would leave employees and their advocates with potential recourse.

    All of which is to say that the issue is up in the air and will remain so unless the Supreme Court steps in. In an age when technology forces questions about the fundamental assumptions of the employer-employee relationship, now would be an ideal time for them to clear the air.

    Daniel H. Handman is a partner at Hirschfeld Kraemer LLP, a law firm in Los Angeles, California representing employers exclusively in labor and employment disputes.