Regulate With Prejudice? Joint Employer Issue Tests Board Process

The National Labor Relations Board’s surprise decision to tackle joint employer liability via regulation is raising questions about whether the board’s Republican majority already knows how it will resolve one of the biggest labor policy debates in recent years.

But that’s not likely to stop the board from using the rulemaking process to limit legal responsibility for businesses in franchise, staffing, and other contractual arrangements.

“Agencies are allowed to have opinions before they engage in rulemaking,” Aaron Saiger, who teaches administrative law at Fordham University, told Bloomberg Law. “That’s the whole process. Having an opinion is OK, it just has to be a conditional opinion.”

The board announced last week that it will issue a regulation to resolve the ongoing debate over when one business is a joint employer of another’s workers for unionization purposes. That question has been clouded by conflicting decisions—the board briefly reverted to a more restrictive approach to joint employment and then dropped the ruling—and conflict-of-interest concerns.

A Democratic-majority NLRB in the 2015 Browning-Ferris Industries case expanded joint employer liability to include situations in which a business has indirect control over workers hired by staffing agencies or franchisees. That’s drawn criticism from McDonald’s and other large franchisers that require franchisees to follow a wide range of policies to maintain brand uniformity. It could also make companies that use staffing agencies joint employers of workers provided by those firms.

Democratic board members Lauren McFerran and Mark Gaston Pearce took to Twitter to express their concerns about fairness in the regulatory process shortly after the NLRB announced it would draft a joint employer regulation. McFerran urged the Republican majority to “deliberate carefully, allow public input, and abandon the ‘decide first, ask questions later’ approach” she said had accompanied a flurry of decisions overturning Obama-era precedent late last year.

Those concerns are shaping the next legal debate over joint employer liability and could form the basis for a lawsuit challenging any regulation seeking to clarify the issue. The board is obligated by the Administrative Procedure Act to allow workers, businesses, unions, and other interested parties to weigh in before issuing a new regulation.

In other words, Saiger told Bloomberg Law, “the APA forbids that I stick my fingers in my ear and refuse to listen to what people say.”

Long Time Coming

The five-member labor board does most of its work by issuing decisions in unfair labor practice and union representation election cases. The NLRB has used regulations to interpret federal labor law sparingly, in part because of the time it takes to complete the notice-and-comment process.

“It’s a very arduous, painstaking, and tedious rulemaking process,” Wilma Liebman (D), who as the board’s chairman in 2011 led the process of issuing a new rule on union elections, told Bloomberg Law. “Before embarking on it we did a lot of training on the regulatory requirements.”

The process requires the board to draft a proposed version of the regulation, which the White House Office of Management and Budget must clear before the proposed rule is made public. If the regulation is “economically significant"—that is, it’s expected to have an annual impact of $100 million or more—the board will also have to include a detailed economic analysis to justify it. The board then has to allow the public to comment on the regulation and must address those comments, which can number in the tens of thousands, in the final version of the rule.

The time-intense nature of writing a regulation makes a new rule harder to undo than a case decision updating the joint employment standard. The board’s approach to various legal issues through case decisions tends to swing back and forth, depending on which party is in control.

“To do it by case adjudication, which is subject to flip flopping because of the political nature of the board, is an outrageous penalty to all kinds of businesses, large and small,” former NLRB Member John Raudabaugh (R) told Bloomberg Law. “This is going to take time but, once it’s done, it will also take time for the next crowd to flip it in the other direction.

The board in the December ruling Hy-Brand Industrial Contractors reverted to a previous joint employer standard requiring a business to have direct control over another business’s employees to be required to collectively bargain with them. The NLRB in a three-member decision later dropped that ruling after the NLRB inspector general concluded that Member William Emanuel (R) shouldn’t have participated in the case. Emanuel’s former law firm—Littler Mendelson—represented a staffing company in the separate Browning-Ferris Industries case, which was still on appeal when the board overturned its 2015 Browning-Ferris decision in Hy-Brand.

Supporters of the Obama board’s approach to joint employment say the indirect control standard gives workers a seat at the table, with everyone involved in setting the terms and conditions of their jobs. They’re concerned that the board Republicans will simply turn the scrapped Hy-Brand opinion into a regulation.

“We know where they want to get to now because of the decision in Hy-Brand,” former NLRB Member Sharon Block (D) told Bloomberg Law. “They appear to be using the rulemaking process to do an end run around conflict-of-interest problems.”

New NLRB Chairman John Ring (R) joined the board after the decision to change the joint employment standard in Hy-Brand and the subsequent ruling scrapping that decision. “The Board majority will work to issue a proposed rule ASAP, and we will consider the views of all interested parties,” Ring tweeted last week.

‘Be Scrupulous’

The board can avoid any regulatory hiccups by ensuring that it combs through and responds to public input on the proposed regulation, Saiger said.

“I would tell them you should be scrupulous,” he said. “You need to show that you think about each argument and explain why you think what you’re doing is right.”

Some of the concerns about the board prejudging the issue may have a political bent, according to Liebman.

“If the Democrats were doing this, people would probably say the same thing,” Liebman said. “It is true that sometimes you get input that doesn’t necessarily change your mind but it may change the way you go about writing the regulation.

“I think we can assume they want to undo Browning-Ferris. How they come out in articulating, that is the question.”