Tightening Joint-Employer Status
When the U.S. House of Representatives passed Bill 3441, otherwise known as the Save Local Business Act, its ostensible aim was to clarify and tighten the definition of a joint employer under the National Labor Relations Act and Fair Labor Standards Act.
Passed by a 242-181 margin largely along party lines (eight Democrats crossed over), Bill 3441 would effectively require evidence that an alleged joint employer exercises “active, direct control over employees’ terms and conditions of employment” to be held jointly liable under the NLRA or FLSA.
The bill now will proceed to the Senate, where its prospects are less certain, but employment-law experts who represent employers are optimistic that the Senate might agree on a similar law.
Bill 3441 was driven by a 2015 National Labor Relations Board’s decision in the Browning-Ferris Industries of California case, which basically altered and expanded the joint employer standard under the NLRA. Briefly, the NLRB broadened the standard from a focus on direct control creating joint employment liability to allowing “indirect control,” or even the potential for indirect control, to be enough for an employer to become a joint employer.
While legal experts say the NLRB under the Trump administration is expected to eventually overturn the expandedBrowning-Ferris decision, until it happens, employers must continue to defend against the increased likelihood of joint employer liability under the NLRA.
Denver-based Patrick Scully, a partner in the labor and employment department at Sherman & Howard, says Bill 3441 “addresses and corrects” the NLRB’s expansive and vague definition of joint employer by requiring evidence of direct control.
“Direct control is the only standard that provides any rational guidance to employers attempting to comply with the Act,” Scully says. “This bill would not help employers evade liability, as companies could still be held separately liable for violations of either law.”
He adds that employers who have been revising and rewriting business contracts to deal with the Browning-Ferris decision will, if or when this becomes law, be able to expend resources on more important issues that will contribute to the economy.
“Ideally, such legislation should not be necessary, as the NLRB already had a workable standard prior to Browning-Ferris,” he says. “The Agency’s attempt to expand its reach is what initiated this response.”
Michael Lotito, a San Francisco-based partner at Littler and co-chair of firm’s Workplace Policy Institute, says employers need clarity, not just on the NLRA front, but also when it comes to FLSA repercussions.
“This is a serious piece of legislation,” Lotito says. “Everyone wants this to become law. This is about saving local business; it’s a job creator bill and we hope the Senate will build on that momentum.”
As far as the Labor Board trying to put the Browning-Ferris decision back into the bottle, Lotito says while it’s certainly possible, with constant political shifts in the White House and Congress, trying to create legal certainty by revisiting Browning-Ferris doesn’t really solve the problem.
“Not a lot of companies are going to get hit with NLRB charges, it’s more likely an FLSA charge,” he says. “It’s not about franchise relationships alone, because most companies outsource to others, use contingent workforces to focus on their core business objectives.”
The real explosion of these claims is in the FLSA context, he says, adding that the House bill provides a very clear test with regards to the direct control and relationship that one employer has over secondary employers. Lotito says clarity also will help companies structure business relationships.
“There still will be joint employment relationships,” he says. “The law is about certainty. It really takes us back to fundamental principles with respect to joint employment relationships. It takes us back to where the law was designed to be in the first place.”
Zachary Fasman, a partner in the labor and employment law department at Proskauer in New York, says that to avoid a filibuster would take eight Democrats to vote for the bill in the Senate, something he calls “a tall order.”
Instead, he believes the bill is small enough to be attached to something else that would go through only by a majority vote.
“This is a clean enough, small piece of legislation that could be appended to a bill that would only require a majority vote, and I think that’s the most likely chance of passage in the Senate,” he says. “I think that it’s hard to see the Democrats breaking ranks to that to extent.”
Either way, Fasman says he expects the Browning-Ferris law under the NLRA to change at some point, whether it’s through the NLRB process or by having this bill passed in some form in the Senate.
“The more critical aspect of this bill is that it would also change the law under the Fair Labor Standards Act,” he says.
He says that the law regarding joint employers under the FLSA is very far from uniform, as some circuits use a four-factor test, and some use a six-factor test to determine joint employer status.
“They’re all over the place,” he says. “It’s not a uniform definition, and it’s of substantial importance to our clients that there is a uniform test for joint employment under that statute as well.
“Employers absolutely want to do the right thing,” Fasman continues. “They want to comply with the Fair Labor Standards Act, which is a difficult act to comply with no matter how you cut it, it’s very complex.” He says there were about 9,600 FLSA cases filed in 2016, and while not all of them concerned joint-employer status, many of them did.
Fasman cites the example of a company that would contract with a security firm to protect its building or buildings. Among other measures, there could be guards assigned by the contractor. Should a company who hires those guards indirectly through a contractor be liable if the contractor doesn’t pay them overtime, because they work on the contracting company’s premises?
“Those are big questions and are magnified because there are all types of subcontractors or contractors like that who have tremendous amount of expertise,” he says. “It’s not just security guards.”