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Labor Board Proposes Tossing Trump Joint Employer Regulation (3)

Sept. 6, 2022, 2:34 PMUpdated: Sept. 6, 2022, 8:29 PM

A National Labor Relations Board move to ease the legal standard for deciding when one company jointly employs another firm’s workers is a big step toward undoing the employer-friendly rule minted during the Trump administration.

The looser standard proposed Tuesday could mean legal exposure for national franchise companies such as 7-Eleven Inc., Marriott International Inc. and McDonald’s Corp. largely shielded from labor violations by individual store owners and third-party contractors. McDonald’s in 2019 reached a settlement with the Trump NLRB that absolved the company of responsibility as a joint employer for alleged violations at its franchisees’ restaurants.

The NLRB’s proposed rule would expand the factors that can establish a joint employment relationship to include indirect and unexercised control over the terms and conditions of a job. Companies would be considered joint employers if they co-determine “essential terms and conditions of employment,” such as scheduling, wages, and benefits. It would rescind the Trump-era joint employer rule that took effect in April 2020, which broke the tradition of shaping policy through a board decision in an individual case.

“We believe there’s little reason or need to update the current policy, but all of the reasons to change this policy are purely ideological,” said Michael Layman, a lobbyist for for the International Franchise Association.

Joint employers share liability for unfair labor practices and responsibility for bargaining with a union, making the NLRB’s legal test for joint employment one of the most bitterly contested issues in federal labor law over the past decade. The policy itself has vacillated based on the party in the majority, with Republicans favoring a more business-friendly standard and Democrats seeking to crack down on employers looking to punt liability for alleged abuses.

“In an economy where employment relationships are increasingly complex, the Board must ensure that its legal rules for deciding which employers should engage in collective bargaining serve the goals of the National Labor Relations Act,” NLRB Chair Lauren McFerran said in a statement.

Business Concerns

The potential for extending labor law obligations across companies is a concern in the franchising industry and for companies that source labor through contracting, temporary staffing, and other business-to-business arrangements.

“A company could be forced to collectively bargain or otherwise deal with a union that doesn’t represent the company’s own employees, lose the protections against union picketing of neutral employers, and share in liability for labor and employment violations committed by another business,” Kurt G. Larkin, a partner at the management-side firm Hunton Andrews Kurth, said in an email.

Layman criticized two board members, Gwynne Wilcox and David Prouty, who were previously attorneys for the Service Employees International Union. The union sought to overturn the Trump-era rule in court.

“This is one of their first actions where they’re using government to advance the agenda of their old employer at the expense of small businesses around the country,” Layman said.

Greater Reach?

Joint employment also could play a crucial role in the brewing legal battle over whether college student athletes are considered employees with labor law rights. The NLRB only has jurisdiction over private employers, but the agency is investigating a case that could lead to allegations that private athletic conferences jointly employ student athletes at public universities.

The NLRB will take public comments on its joint employer proposal before finalizing the rule.

The US Department of Labor is exploring a similar rule under the Fair Labor Standards Act, which regulates wages, overtime, and other aspects of employment. The Biden administration successfully rolled back a Trump-era FLSA rule but hasn’t proposed a replacement.

(Updated with industry and attorney comments. An earlier version misidentified a federal lawsuit over an independent contractor rule.)

To contact the reporters on this story: Ian Kullgren in Washington at ikullgren@bloombergindustry.com; Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Genevieve Douglas at gdouglas@bloomberglaw.com