NLRB Proposes New Rule to Limit Joint Employer Liability

NLRB Proposes New Rule to Limit Joint Employer Liability

On Friday, September 14, 2018, the National Labor Relations Board (“NLRB”) announced a proposed rule, which, if adopted, would drastically reduce a company’s exposure as a “joint employer” under the National Labor Relations Act (“NLRA”).

This new rule, which largely embraces the test previously followed by the NLRB until 2015, will restrict which businesses can be held responsible for another company’s employees as a joint employer.  The new test would replace the standard adopted by the Obama-era Board in Browning-Ferris, which broadened joint employer liability to companies that had only indirect or potential control over another company’s employee working conditions.  In recent years, multiple businesses have challenged the Obama Board standard as confusing and overly broad by increasing joint employer liability to franchisors, parent and affiliated companies, and entities that contract with staffing agencies.

Under the proposed rule, companies cannot be held responsible for another company’s employees unless they meet the following three factors:

  • Possess and exercise substantial, direct and immediate control;
  • Such control is over essential terms and conditions of employment; and
  • Have done so in a manner that is not limited and routine.

Common examples of essential terms and conditions of employment include: hiring, firing, discipline, supervision and/or establishing employee wage rates.  Companies that qualify as joint employers under the National Labor Relations Act (NLRA) can be held responsible for unfair labor practices.  Joint employers are also subject to collective bargaining obligations set by the NLRB.

The draft rule has carved out certain kinds of conduct that will not qualify it as joint employer.  A business with indirect influence over another company’s employees will not be held responsible for unfair labor practices under the NLRA as a joint employer.  For example, under the proposed rule, a franchisor that sets a franchisees’ hours of operation, but does not participate in scheduling employee assignments or setting shift duration, will not be considered a joint employer with its franchisee.   Conversely, if the franchisor exerts substantial influence or control over franchisee employees, including selecting employee health benefits or their 401(k) plan, the franchisor is likely to be deemed a joint employer with the franchisee.

The proposed rule is expected to provide stability, consistency and more meaningful collective bargaining in labor proceedings nationwide.  This is a very welcomed development for the business community; especially parent companies, franchisors and other companies who may have been at risk of legal exposure under the Browning-Ferris standard.

The public may provide comments on the proposed rule, which must be submitted within 60 days from its publication in the Federal Register.  Thereafter, the NLRB  is expected to promulgate a final rule.

As the NLRB prepares to issue a final rule on this subject, companies should take the time to closely review their staffing, franchise and other applicable agreements, as well as their policies, procedures, practices and relationships to ensure that there are no ambiguities concerning responsibility for control over the working conditions of another company’s employees.  Critically, whatever rule ultimately is adopted would apply only to the law administered by the NLRB—the NLRA.  Federal and state agencies that administer and courts that interpret other laws, such as wage and hour laws, Family and Medical Leave Act, and non-discrimination laws, may apply a different standard in determining joint employer liability.  Companies with questions about joint employer liability should contact experienced labor counsel, including attorneys in Saul Ewing Arnstein and Lehr LLP’s labor and employment group.

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