House Hearing Addresses NLRB's New Joint Employer Standard

Members of the House Subcommittee on Health, Employment, Labor, and Pensions held a hearing on a bill that would undo the new joint employer standard the National Labor Relations Board recently established. As previously discussed, the Protecting Local Business Opportunity Act (H.R. 3459, S. 2015) would amend the National Labor Relations Act in light of the Board's contentious decision in Browning-Ferris Industries. In this decision, the Board determined that if an entity affects the means and manner—either directly or indirectly—of the work terms and conditions of another entity's employees, it will be considered a joint employer with the other entity, even if that power was unexercised.

For decades prior to this decision, joint employment was found only if the control exercised by the putative joint employer was actual, direct and substantial. The Protecting Local Business Opportunity Act would return to this standard by clarifying that "two or more employers may be considered joint employers for purposes of [the NLRA] only if each shares and exercises control over essential terms and conditions of employment and such control over these matters is actual, direct, and immediate."

During the hearing, lawmakers and panelists highlighted the potential impact of the Browning-Ferris decision, particularly on small businesses and franchises. According to Subcommittee Chairman Phil Roe (R-TN), the Board "blurred the lines of responsibility for decisions affecting the daily operations of countless small businesses, including the nation’s 780,000 franchise businesses and countless contractors, subcontractors, independent subsidiaries, and more."

Testifying on behalf of the Independent Electrical Contractors, hearing witness Kevin Cole claimed the decision has created a "broad and ambiguous" standard that poses a "litany of potential problems and complications" for businesses. He claimed the new standard makes him potentially liable for the actions of his subcontractor's employees, and exposures his company to another firm's collective bargaining obligations. He said, "moving forward, almost any contractual relationship we enter into may trigger a finding of joint employer status that would make us liable for the employment and labor actions of our subcontractors, vendors, suppliers and staffing firms." He noted also that "the new standard would also expose my company to another company’s collective bargaining obligations and economic protest activity, to include strikes, boycotts, and picketing."

While the Board in Browning-Ferris emphasized that each situation would be evaluated on a case-by-case basis, the witness asked "How can I run a company on a case-by-case basis?" The rules regarding joint employment were "crystal clear" before the decision, Cole said.  He added that the decision "puts a wall up between merit and union shops."

An attorney and former Board Member testifying at the hearing called Browning-Ferris a "groundbreaking decision." He emphasized that he could not recall "a single Board decision so rife with potential abuse and mischief nor one that would intrude the NLRB into the contractual relationships for so many industries and companies. This decision is all about enhancing union leverage in situations where independent companies are not responsible for the employees of other companies."

The witness also noted that Browning-Ferris expanded the universe of what are considered the "essential terms and conditions of employment" over which the putative joint employer may have control.  The scope encompasses not only wages, hours, hiring, firing, and discipline, but also "subjects such as the number of workers to be supplied, scheduling, overtime, productivity, work assignments, and the manner and method of work performance.  This is an extremely broad test."

Other concerns raised at the hearing include having a joint employer be forced to bargain over some topics but not others if one of the entities with which it is deemed to be a joint employer is unionized.  This problem would be compounded if two or more putative joint employers had different financial or commercial interests, the witnesses testified. The Board has provided no guidance in this situation, they said.

Exposure to "greater and potentially automatic" liability for unfair labor practices committed by one's suppliers or contractors was another worry.

In addition, the former NLRB Member panelist claimed that the Board:

adopted a directly contrary approach to that adopted [under Browning-Ferris] where [doing so] suited its policy objectives to enhance union leverage. For instance, with respect to the Board’s determination of independent contractor or supervisory status, both designations that remove individuals from the NLRA’s coverage, the Board has expressly held that it considers only actual evidence of control, authority, or rights. The Board majority in Browning-Ferris attempts to explain away that disingenuous result in a brief footnote, but without any convincing rationale.

Many witnesses and subcommittee members emphasized that the prior joint employer standard had been in place for more than three decades.  The only change, one witness said, is that the workplace has undergone a period of specialization, which has made it more difficult for some unions to organize. This workplace evolution, however, does not give the NLRB license to address this issue by changing the joint employer doctrine, according to a panelist.

The new standard is particularly troubling for the franchise model.  Franchisee Mara Fortin, President and CEO of Nothing Bundt Cakes San Diego testifying on behalf of the Coalition to Save Local Business, offered her support for the Protecting Local Business Opportunity Act. She said the assumption made by the NLRB that a franchisor is the employer of her employees was "insulting." The new standard, she said, "completely misunderstands how franchising works."

One witness, however, questioned whether Browning-Ferris posed a problem for businesses.  Law Professor Michael Harper thought the decision was a narrow one, and that its significance "has been greatly exaggerated." He said the decision "uses the common law as a precondition for finding joint employer status," and that the legislation at issue during the hearing was unnecessary. 

The debate over the Protecting Local Business Opportunity Act came a day after Senator Mike Lee (R-UT) introduced another bill seeking to curtail the NLRB's authority. The Protecting American Jobs Act (S. 2084), introduced in the Senate on September 28, 2015, would transfer prosecutorial and adjudicative authority over labor disputes from the NLRB to federal courts.  Under the terms of the bill, the Board would still have the power to conduct investigations. This measures was referred to committee.

The Board's perceived overreach will likely be the subject of continuing discussion in the months ahead. The Senate Committee on Health, Education, Labor and Pensions is scheduled to hold its own hearing on the joint employer standard next Tuesday, October 6.

A full list of the panelists and links to their testimony for today's hearing can be found here

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.