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NLRB’s Handling of Joint Employer Petitions: Fodder for Lawsuits (1)

Dec. 10, 2018, 9:25 PMUpdated: Dec. 10, 2018, 11:16 PM

The National Labor Relations Board’s alleged failure to disclose communications it had with business groups about changing its legal standard for joint liability under federal labor law could bolster legal challenges to an eventual final rule, according to administrative law scholars.

Business groups submitted rulemaking petitions to the NLRB that appear to have substantially affected the development of the agency’s joint employment proposal, the AFL-CIO said in a Dec. 7 filing. Those petitions included proposals and legal arguments for a new standard.

The NLRB’s legal framework for joint employment can be crucial for franchisers and companies that rely on contract labor. One closely watched example is an ongoing case involving claims that McDonald’s exercises enough control over franchisees that it should share responsibility for unfair labor practices.

The NLRB announced in May that it was considering using administrative rulemaking rather than case adjudication to set a new standard for joint employment. The U.S. Chamber of Commerce, the International Franchise Association, and more than a dozen other business groups submitted rulemaking petitions in June.

The NLRB announced its proposed rule in September, which calls for a narrower, more business-friendly threshold for joint employment. The agency didn’t mention the industry petitions in the proposal or include them in the rulemaking record, the AFL-CIO said.

The Administrative Procedure Act, which governs agency rulemaking, doesn’t require the NLRB to publicly disclose those petitions, administrative law scholars said.

But agencies commonly make such communications public, as the failure to do so can open them to allegations of prejudging the issue or hiding the justifications for their proposal, scholars said.

NLRB: No Secret Influence

The NLRB denied the AFL-CIO’s accusations that the business group secretly influenced the agency’s joint employment proposal with their petitions.

The agency followed its standard procedures when it routed the petitions to its solicitor’s office, the NLRB said in a statement emailed to Bloomberg Law. The petitions weren’t distributed to the board members, the agency said.

The NLRB considers the petitions part of its administrative record and they will be included in that record when the rulemaking is completed, the agency said.

The petitions had “no influence” on the board’s decision to pursue rulemaking on joint employment, the NLRB said. The agency’s efforts on rulemaking had started before the petitions were filed and they weren’t reviewed by board members, it said.

Not Disclosing Petitions a ‘Kick Me’ Sign

The NLRB not disclosing the industry petitions would be an “unforced error” akin to “putting a ‘kick me’ sign on your own butt,” David Vladeck, an administrative law professor at Georgetown University, told Bloomberg Law.

But the bar is extremely high to prove an agency’s rulemaking was so biased that the rule should be thrown out, scholars said. That standard is whether the agency decision-makers had an “unalterably closed mind” and challengers essentially never win, said Richard Pierce, an administrative law professor at George Washington University.

Nevertheless, scholars said there is precedent that agencies must disclose the facts used to develop proposed rules so stakeholders have a chance to respond in their comments. Without that information, opponents of a rule can’t explain why the justifications an agency used are faulty, they said.

“One of the claims about the joint employer rule is that it causes confusion, so if assertions made in the petitions go to that claim, then it seems to me the NLRB should have disclosed it,” Sidney Shapiro, an administrative law professor at Wake Forest University, told Bloomberg Law.

The NLRB rarely engages in formal notice-and-comment rulemaking. It has issued only three substantive regulations over the past three decades. Scholars said the failure to disclose the petitions may have been due to agency staffers’ lack of rulemaking experience.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Simon Nadel at snadel@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com