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Joint Employer Labor Regulation Clouded by Court Decision

Dec. 28, 2018, 10:49 PM

A new federal appeals court ruling complicates the National Labor Relations Board’s effort to limit “joint employment” liability for businesses.

The NLRB acted properly in 2015 when it adopted a more expansive test for determining when companies in franchise, staffing, and other relationships should be considered joint employers for liability and collective bargaining purposes, the U.S. Court of Appeals for the D.C. Circuit held Dec. 28. The board broke new ground with that test by saying that a company that has the authority to exert control over another company’s workforce could be required to bargain with or be held liable for unfair labor practices against the workers, even if it doesn’t exercise that ability.

The NLRB’s test, crafted by a Democratic majority, has been the subject of heated debate in the business community, courts, and Congress, highlighted by litigation involving McDonald’s and allegations against Microsoft. The now Republican-majority board is working on a regulation that would limit joint employment and allow businesses more leeway to outsource labor and other components.

The D.C. Circuit’s 2-1 ruling could constrain the agency to a standard close to the more expansive test for joint employment liability that’s currently in place. That’s because the court said the judicial branch has primary authority to define what is an ‘employer,’ as opposed to agencies.

“The majority’s opinion potentially has this effect because it is rendered de novo, a standard of review the Board may not have anticipated,” Judge A. Raymond Randolph, the dissenting judge, wrote. “On de novo review it is the court, not the Board, who decides what will be the test for joint employer status.”

Lauren McFerran, the lone Democrat on the board, agreed with the court. “As my dissent from the proposed rulemaking makes clear, the majority’s proposal ‘fails the threshold test of consistency with the common law’ and needs to be fundamentally reexamined,” McFerran said on Twitter shortly after the decision was released. Chairman John Ring and other board members didn’t immediately respond to a request for comment.

Representatives for Republic Services Inc., Browning-Ferris’ parent company, and Teamsters Local 350, didn’t immediately respond to a request for comment.

Businesses Say Clarity Needed

The court upheld the 2015 joint-employer test, including “consideration of both an employer’s reserved right to control and its indirect control over employees’ terms and conditions of employment,’” Christine Owens, executive director of the National Employment Law Project, said in a Dec. 28 statement. Owens, who leads the worker advocacy organization, said “the Board is now on notice that the only course open to it is to apply the law as the court has interpreted it.”

Some former board members said it’s not immediately clear how much the decision may handcuff the board in developing the new joint employer regulation.

One vocal supporter of the move to limit joint employer liability said the decision shows just how complicated the Obama-era test has become. The D.C. Circuit upheld that test but ruled that the board applied it improperly in finding that Browning-Ferris Industries of California Inc. could be considered an employer of workers hired by a staffing company to sort materials at a BFI recycling plant.

“The unfortunate twists and turns continue for franchise owners in this ongoing saga. If the 2nd highest court in the land can’t interpret how the Obama NLRB intended for their convoluted joint employer standard to be applied, how is a small business owner supposed to figure it out?” Matthew Haller, a senior vice president at the International Franchise Association said via email. “This underscores the need for rulemaking or a legislative solution to clear up the uncertainty facing America’s 730,000 franchise small business owners and their employees.”

NLRB Rule in Question

The majority judges said courts are tasked with articulating the legal definition of “employer.” The NLRB can issue regulations and decide cases about when two companies are joint employers, but the agency has to conform to the judiciary’s definitions.

That creates some questions about how far the board can depart from the current joint employment test in a new regulation. It’s not clear whether the board will address those questions after reviewing public comments on the proposed regulation and in issuing a final rule.

Judge Patricia A. Millett, who wrote for the majority, said the NLRB was correct in setting the test but made a mistake by not distinguishing between forms of indirect control that affect “workers’ essential terms and conditions” and those that are “intrinsic to ordinary third-party contracting relationships” between companies, she said.

“There’s some questions unanswered but there’s enough here that it’d be very hard for the board to move forward in good faith without rethinking the implications of this decision,” Sharon Block, Executive Director of the Labor and Worklife Program at Harvard Law School and former NLRB member told Bloomberg Law. “They clearly found that they have the last word, so the board acts at its peril in not taking their perspective into account.”

Randolph in dissent said the new test misconstrues common law in order to expand joint employer liability to include businesses that have an unexercised right to control workers. The court should have remanded the case to the NLRB while it carries out its joint employer rulemaking, he said.

Randolph noted that other federal appeals courts also have jurisdiction to review board rules and suggested in a footnote that the board could ignore his colleague’s decision.

Congress has attempted unsuccessfully to undo the Browning-Ferris decision through legislation. McDonald’s is continuing to fight separate litigation alleging that it’s a joint employer of workers at franchisee restaurants who were fired for participating in Fight for $15 demonstrations.

The case is Browning-Ferris Industries of Calif., Inc. v. NLRB, D.C. Cir., No. 16-1028, 12/28/18.

To contact the reporters on this story: Hassan A. Kanu in Washington at hkanu@bloomberglaw.com; Jon Steingart in Washington at jsteingart@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com