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Save Local Business Act: Is tanking the revised joint-employer standard the right move?

September 14th, 2017  |  Pamela Wolf

On September 13, 2017, the House Education and the Workforce Subcommittee on Workforce Protections and the Subcommittee on Health, Employment, Labor, and Pensions held a joint legislative hearing to examine the Save Local Business Act, which would tank the National Labor Relation Board’s revised joint-employer standard. The legislation, H.R. 3441, would roll back what proponents see as an “extreme joint-employer scheme” and clarify that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers. The billl’s opponents contend that by creating a new, narrow definition of a “joint employer” under the National Labor Relations Act and the Fair Labor Standards Act, H.R. 3441 would dismantle legal protections that workers have relied upon for decades, creating chaos and uncertainty for workers.

The bill, which enjoys some bipartisan support, would get rid of the revised joint-employer standard articulated in the 3-2 Browning-Ferris Industries decision, in which the NLRB returned to its pre-1984 standard for determining joint-employer status under the NLRA. In that ruling, the Board announced that it would no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Nor would the Board require that to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.

Tanking the NLRB’s revised definition. Proponents of H.R. 3441 see it as the vehicle through which the NLRB’s revised joint-employer standard should be undone. “To most Americans, the question over who their employer is seems to be an obvious answer. It’s the person who hired them, the one who signs their paycheck,” Representative Bradley Byrne said at the hearing. “As a former labor attorney, I can tell you it used to be very clear in legal terms how you become someone’s employer. But that’s no longer the case since the [NLRB] stepped in.”

“It’s time to settle once and for all what constitutes a joint employer—not through arbitrary and misguided NLRB decisions and rulings by activist judges—but through legislation,” Representative Tim Walberg (R-Mich.) added.

Costing small businesses more. Tamra Kennedy testified on behalf of the Coalition to Save Local Businesses. She is a business owner who started out as a secretary for a local Taco John’s franchise and went on to own several of her own restaurants. Kennedy expressed her concern that the revised joint-employer rule may rob her of the success and independence she worked so hard to achieve. “After two years operating under the expanded joint-employer standard, the impact on my business is clear: joint employer means I must pay more to run my business, and earn less in return, all while worrying if the unclear joint-employer liability rule will continue to erode my autonomy to run my business,” she said.

Kennedy pointed out that her franchisor used to provide standard employee handbooks to franchisees, but because of the expanded joint employment liability, no longer does so, even though the franchisor has the expertise and best practices that would be most helpful for her and her employees. Kennedy said she now must hire an outside attorney to write an employee handbook, which cost her business $9,000 to have outside counsel prepare. She also needs attorneys to update her handbook each time the law changes.

The small business owner also noted that she no longer receives a job application form from her franchisor. She must create her own application and keep it updated. Moreover, Kennedy said, she must recruit employees on her own. For years, her brand company produced and provided franchise owners employee recruiting kits with banners, brochures, fliers, and an employment application form for use in the restaurants.

“All of the materials were created by the brand and presented a unified, consistent quality to our potential employees,” Kennedy said. “Today, because of the fear of joint-employment liability, these essential recruitment tools are no longer available to franchisees. While we are welcome to produce our own materials—both incurring the cost of design and printing—we can no longer expect this support from our brand company. It also creates another barrier to hiring great people, so unfortunately, I’m creating jobs in my community slower than I otherwise would.”

Will small businesses get hurt? Not everyone agrees that H.R. 3441 would help small businesses—some predict that it would hurt more than help. “The proposed narrow definition of ‘joint employer’ would have seriously negative impacts on workers and on small business owners,” according to Michael Rubin, Partner at Altshuler Berzon LLP. “[H.R. 3441] would also leave small business owners in the untenable position of facing the risk of being held solely responsible for labor law compliance and collective bargaining even when they lack the authority or means to fulfill that legal responsibility. . . I am convinced that H.R. 3441 will [not] benefit local businesses.”

Subcontracting in the construction industry. Granger MacDonald, who appeared on behalf of the National Association of Home Builders and is a second-generation home builder from Kerrville, Texas, explained the importance of contracting in his industry, and how the joint-employer scheme limits the ability to contract with other companies.

“Without [contractors], my company and many other family-owned home building firms like it would simply cease to be viable operations,” MacDonald said. But “simply by applying responsible everyday business practices, we could still be held accountable for the labor and employment practices of third-party vendors, suppliers, and contractors over whom we have no direct control.”

MacDonald added that the joint-employer threat to contracting undermines the housing market recovery.

“Congress should consider policies that support a continued housing recovery, starting with undoing the harmful precedent set by the NLRB’s expanded joint-employer doctrine and other policies that reduce labor market flexibility,” he said.

Collective bargaining problem. Employment lawyer Zachary Fasman, a partner in the law firm of Proskauer Rose, LLP, called Browning-Ferris “nothing short of a disaster.” He said the key problem of the Browning-Ferris decision is that it “sweeps virtually every contracting relationship within its boundaries. In practice, it is no standard at all.” He cited the Browning-Ferris dissent: ‘[n]o bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.’

As to H.R. 3441, Fasman disputed claims made by critics, saying, “This bill would not deny any employee the right to join and form a union or to bargain with his or her employer. It would merely establish that the proper employer for bargaining is the employer that actually sets the terms and conditions of employment in the workplace, and not some affiliated entity which has a commercial relationship with the employer.”

Undermining employer accountability. But Representative Mark Takano (D-Calif.) saw it differently. “For decades, joint-employment standards have ensured workers can hold employers accountable for violating wage and hour laws or refusing to collectively bargain. This bill represents a significant and dangerous break from that precedent that would undermine the rights of American workers,” he said. “This legislation rewards companies that rent employees from staffing agencies instead of hiring them directly, and allows them to evade responsibility for upholding the rights of those employees, even though they profit from their work.”

Opponents of H.R. 3441 also contend that it gives unscrupulous employers a roadmap for evading the obligations they owe to workers under current law. Employers can outsource one of the bill’s listed terms of employment, such as determining work schedules, to another entity and evade all responsibilities to collectively bargain with workers or to pay wages owed to workers. Similarly, because a joint employer must exert control “directly, actually, and immediately” under the bill, an employer can convey all employment directions through a third party without ever being considered a joint employer, Subcommittee Democrats suggested.

“This bill is simply an excuse for top corporations to remove any responsibility to their workers. They are subcontracting their consciences to put profits over people,” said Representative Donald Norcross (D-N.J.). “This bill would leave countless hardworking Americans without a voice in their workplace at a time when Congress should be helping to lift up workers by raising wages and improving workplace conditions.”

The “Save Local Business Act” represents a blank check for powerful franchisors to dictate small franchisees’ employment practices, while at the same time leaving franchisees on the hook for any legal violations,” according to opponents of the measure.

Joint-employer liability narrowed out of existence? It’s worth considering whether under H.R. 3441, joint-employer responsibility would be narrowed to the point of nonexistence, and whether that’s a good thing. Rubin said that the practical impact of the bill would be “to eliminate joint-employer responsibility under the NLRA and FLSA altogether.” He explained that the proposed definition of “joint employer” under the bill “so dramatically narrows the common law standard under the NLRA and the ‘suffer or permit’ standard under the FLSA that it will prevent any entity, other than the direct employer itself, from being a ‘joint employer.’” The result would be that H.R. 3441 would “effectively overrule hundreds of court decisions, going back to well before the Supreme Court’s first major joint-employer decision in 1947, which held that a slaughterhouse owner was the statutory employer of the meat deboners it hired through an independent staffing contractor.”