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3-2 NLRB overrules Browning-Ferris; to be joint employer, exercise of control must be direct and immediate

By Ronald Miller, J.D. and Lisa Milam-Perez, J.D.

With the clock ticking on NLRB Chair Philip Miscimarra’s December 16 departure and emboldened by a Republican majority, finally intact, a divided NLRB, in a 3-2 decision, overruled its controversial 2015 decision in Browning-Ferris Industries, which expanded the scope of joint-employer liability, and returned to the Board’s pre-Browning-Ferris standard. The NLRB ruled that in all future and pending cases, two or more entities will be deemed joint employers under the NLRA if there is proof that one entity actually has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine. Accordingly, under the pre-Browning-Ferris standard now restored, proof of indirect control, contractually reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint employer relationship. Members Pearce and McFerran filed a separate dissenting opinion (Hy-Brand Industrial Contractors, Ltd., December 14, 2017).

This case involved an administrative law judge’s finding that two entities—Hy-Brand Industrial Contractors, Ltd. (Hy-Brand) and Brandt Construction Co. (Brandt)—are joint employers and/or a single employer for purposes of the NLRA. Five Hy-Brand employees and two Brandt employees were discharged after they engaged in work stoppages based on concerns involving wages, benefits, and workplace safety. The Board agreed that the work stoppages constituted protected concerted activity and the discharges constituted unlawful interference with the exercise of protected rights. Further, the Board agreed with the ALJ that Hy-Brand and Brandt were joint employers. However, the Board disagreed with the legal standard applied by the law judge in reaching that finding.

Exercise of control. The ALJ applied the standard adopted in Browning-Ferris Industries of California, Inc. dba BFI Newby Island Recyclery. Under Browning-Ferris, it was not required that an employer actually exercise authority to control employees’ terms and conditions of employment. Moreover, it was sufficient for control to be exercised indirectly—such as through an intermediary—to establish joint-employer status. The current Board concluded that the Browning-Ferris standard was a distortion of common law, contrary to the NLRA, ill-advised as a matter of policy, and that its application prevented the Board from fostering stability in labor-management relations. Accordingly, the Board overruled Browning-Ferris and returned to the principles governing joint-employer status that existed prior to that decision.

Applying the reinstated pre-Browning-Ferris standard, the Board agreed with the ALJ that Hy-Brand and Brandt were joint employers and therefore jointly and severally liable for the unlawful discharges of the seven striking employees. However, it did not reach or pass on whether, in the alternative, Hy-Brand and Brandt constituted a single employer.

Joint employer defined. The Act does not expressly define who is an employer, whether joint or sole. “The basis of the joint-employer finding is that one employer while contracting in good faith with an otherwise independent company, has retained for itself sufficient control of terms and conditions of employment of the employees who are employed by the other employer. Thus, the ‘joint employer’ concept recognizes that the business entities involved are in fact separate but that they share or co-determine those matters governing the essential terms and conditions of employment.”

The pre-Browning-Ferris test was fully consistent with the common law agency principles that the Board must apply in determining joint-employer status. According to the Board, the threshold problem with Browning-Ferris’s reformulated joint-employer test was that it far exceeded the limits of the Board’s statutory authority. The majority in Browning-Ferris adopted a much more expansive policy-based “economic realities” and “statutory purpose” approach to govern the definition of employer as well as employee under the Act. Thus, the current Board found the Browning-Ferris joint-employer test invalid because it does not comport with common law agency principles.

Labor stability. The current Board disagreed with any suggestion that the Browning-Ferris test constitutes an appropriate way under common law to advance the statutory goal of promoting collective bargaining. The Board found that there was no judicial precedent adverse to the Board’s “direct and immediate control” standard or supportive of the Browning-Ferris standard. Moreover, it observed that Browning-Ferris’ multi-factor test lacked the required explanation of which factors are significant and which less so, in order to provide guidance as to when and how parties may contract for the performance of work without being deemed joint employers. Browning-Ferris greatly expanded the joint-employer test without grappling with its practical implications for real-world collective bargaining relationships. Accordingly, the current Board found that the Browning-Ferris test was more likely to destabilize collective bargaining than promote it.

Among the various contracting arrangements impacted by the Browning-Ferris standard, franchisors stand out among the thousands of business entities that suddenly found themselves to be joint employers. For many years, the Board had generally not held franchisors to be joint employers with their franchisees, regardless of the degree of indirect control retained. The majority in Browning-Ferris did not consider the potential impact of its new standard on franchising relations. The Board in that decision left open whether it agreed with the General Counsel’s position that it should continue to exempt franchisors from joint-employment status to the extent their indirect control over employee working conditions was related to their legitimate interest in protecting the quality of their product or brand.

Dissent. In a dissenting opinion, Members Pearce and McFerran argued that this decision represented a failure to engage in reasoned decisionmaking required of administrative agencies by the Administrative Procedure Act. They pointed out that this case could easily be decided without reaching the joint-employer issue at all, by correctly finding that the respondents were, in fact, a single employer; the adoption of a new joint-employer standard made no difference as to whether the respondents in this instance were, in fact, joint employers, and no party in this case asked the Board to reconsider Browning-Ferris. Moreover, the dissent observed that the Board broke with established practice, and failed to give notice that it was considering a change in the law and failed to provide interested persons with an opportunity to file briefs on the issue. Further, the dissent noted that the D.C. Circuit is currently reviewing Browning-Ferris. Thus, they concluded that there was no genuine occasion to revisit the Board’s joint-employer standard.

Expert comments. Employment Law Daily spoke with attorney Mark G. Kisicki, shareholder in Ogletree Deakins’ Phoenix office, about the Board decision. Kisicki called the ruling a “very well-reasoned, scholarly critique of the original decision, grounded in decades of Board jurisprudence and court interpretations of what the National Labor Relations Act is and how it applies.” Apart from the ruling’s “legal grounding,” the practical implication of the Hy-Brand Board decision overturning Browning-Ferris is a retreat from that decision’s dramatic overreach and lack of practical guidance as to how to interpret that 2015 ruling. It instead returns the focus to the fundamental understanding of who is an employer under the traditional common law understanding.

So what happens to the actual Browning-Ferris decision, now on appeal to the DC Circuit? Kisicki predicted that the NLRB General Counsel would request that the case be remanded to the Board “with all deliberate speed.”

Regarding the impact of this decision on franchising, Kisicki predicted that the franchising community would be the “most ecstatic” about the return to normalcy signified by the return to the earlier joint employer standard. “The franchising community lives this every day” as a matter of operating process, he noted because the franchisor does exercise some control for branding purposes at the very least.

International Franchise Association reaction. The International Franchise Association (IFA) welcomed the NLRB’s decision. IFA Senior Vice President of Government Relations & Public Affairs Matt Haller said in a statement that the “decision helps create certainty for franchisors and franchisees in the near term and highlights the need for long-term certainty in this area.”