On February 26, 2018, the National Labor Relations Board (NLRB) drastically changed its test – again – for determining whether two separate and independent entities are joint employers of the same employees. It was the third change in less than three years.
For over 30 years the test for joint employment was whether a putative joint employer actually exercised “direct and immediate control” over the essential terms and conditions of the relevant worker’s employment. That changed with the NLRB’s controversial 2015 decision in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015), in which the board held that indirect control through an intermediary or the reserved right to control, even if unexercised, may be sufficient to find a joint-employment relationship. Two years later the board’s December 2017 ruling in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (2017) overruled Browning-Ferris and restored the traditional standard. A prior update about Hy-Brand is available here.
On Monday, however, the board vacated its Hy-Brand ruling, finding that a member of the 3-2 majority should have been disqualified from participating. As a result, “the overruling of the Browning-Ferris decision is of no force or effect.” Monday’s order is available here.
The return to Browning-Ferris’ expansive standard will have far-reaching consequences for franchisors, dealers, manufacturers, and other types of businesses. As the original Hy-Brand ruling noted, Browning-Ferris was “almost certainly momentous and hugely disruptive” to franchise relationships. The reinstatement of Browning-Ferris underscores the need for federal legislation that clarifies the standard for finding joint-employer liability in a way that recognizes the franchise model.
In August 2015, the NLRB upended over 30 years of precedent to “restate” the joint-employer standard under the National Labor Relations Act (NLRA), the federal law that encourages collective bargaining and regulates certain labor practices. Since a pair of decisions in 1984, the NLRB had focused on whether a putative joint employer actually exercised “direct and immediate control” over the essential terms and conditions of the relevant worker’s employment, such as hiring, firing, discipline, supervision, and direction. Although a fact-specific inquiry, this standard was widely seen as creating a fairly predictable legal regime for most businesses, including those in the franchise industry. Absent extraordinary circumstances, a franchisor would rarely be found to be a joint employer with its franchisees under the pre-Browning-Ferris standard.
All that changed with Browning-Ferris. In a 3-2 ruling, the majority overturned earlier board decisions requiring “direct and immediate control,” finding indirect control through an intermediary or the reserved right to control, even if unexercised, may be sufficient to find a joint-employer relationship. This expansive standard lowered the bar for imposing joint-employer liability. Suddenly, a company could be drawn into a labor dispute involving employees over whom it lacked any direct and immediate control.
In the wake of Browning-Ferris and the NLRB’s ongoing efforts to declare McDonald’s USA to be a joint employer liable for its franchisees’ alleged labor violations, many franchise stakeholders have worried that, by merely exercising control over brand standards and trademarks, franchisors could be subjected to joint-employer liability.
On December 14, 2017, a new 3-2 majority in Hy-Brand explicitly repudiated Browning-Ferris’ expansion of the joint-employer standard and restored the traditional standard. Relying heavily on the Browning-Ferris dissent, the majority argued the standard announced in Browning-Ferris was an “analytical grab bag” that was too “vague and ill-defined” to provide meaningful guidance to employers and employees. The board then announced its return to the prior, pre-Browning-Ferris test, which “provided certainty and predictability.”
Although neither Browning-Ferris nor Hy-Brand were franchise cases, the Hy-Brand majority nevertheless analyzed the effect of the Browning-Ferris standard on the franchising industry. Observing that Browning-Ferris was “almost certainly momentous and hugely disruptive” to franchise relationships, the Hy-Brand majority found that expansion of the joint-employer standard necessarily placed franchisors in a dilemma: Franchisors could either police their trademarks and brand standards (as they are legally required to do) and risk joint-employer liability for such “indirect” or “reserved” control, or they could avoid such enforcement and risk losing their trademark rights altogether. As the Hy-Brand majority recognized, such an unworkable conflict was at odds with Congressional intent and Supreme Court precedent.
Hy-Brand Undone and Browning-Ferris Reinstated
On February 26, 2018, the NLRB vacated Hy-Brand after an inspector general report concluded that board member Bill Emanuel should have recused himself from the case due to a potential conflict of interest. Noting that Emanuel’s former firm (Littler Mendelson P.C.) had represented one of the parties in Browning-Ferris before the board and that Hy-Brand was essentially a continuation of deliberations that took place in Browning-Ferris, NLRB Inspector General David Berry stated in a February 9 report that Emanuel should not have participated in Hy-Brand. The inspector general recommended the board consult with an agency ethics official to determine the appropriate action. After the board’s Designated Agency Ethics Official concluded that Emanuel should have been disqualified from participating in Hy-Brand, the remaining board members unanimously vacated and set aside the original Hy-Brand decision. As a result, “the overruling of the Browning-Ferris decision is of no force or effect.”
The Need for Federal Legislation
The recent fluctuation of the joint-employment standard highlights the need for broad-based federal legislation to clarify the joint-employer relationship. Introduced in the House of Representatives on July 27, 2017, H.R. 3441 – the Save Local Business Act – seeks to clarify who may be deemed a joint employer under the NLRA and the Fair Labor Standards Act. Under the proposed legislation, to be deemed a joint employer, a business must “directly, actually, and immediately, and not in a limited and routine manner, exercise significant control over the essential terms and conditions of employment, such as hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, or administering employee discipline.” The bill passed in the House of Representatives in November 2017 and now awaits action in the Senate. Franchisors and franchisees alike should strongly support the pending Save Local Business Act.