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‘Protecting Local Business Opportunity Act’ hearing examines NLRB joint employer standard

By Pamela Wolf, J.D.

Among the many questions raised by testimony at a House Education and the Workforce subcommittee hearing were whether the NLRB’s revision last month of its long-held joint employer standard was a “usurpation of the role of Congress in defining ‘employer’ under the NLRA,” or merely “returns Board precedent to traditional common-law principles.” In the wake of the NLRB’s adoption of a revised joint employer standard in Browning Ferris Industries of California, Inc. dba BFI Newby Island Recyclery, came a firestorm of controversy, including serious concerns that the new standard would have a devastating effect on small businesses and franchisees. The hearing on the proposed “Protecting Local Business Opportunity Act,” aimed at rolling back the Board’s new joint employer standard, revealed opposing views as to whether the bill would roll back a standard that favors unions or reduce the ability of employees to bargain collectively.

On August 27, revisiting its joint employer standard, a divided five-member panel of the NLRB reaffirmed the standard articulated by the Third Circuit’s 1981 decision in NLRB v. Browning-Ferris Industries of Pennsylvania, Inc. Noting that the Board had since imposed additional requirements for finding joint-employer status, which had no clear basis in the Third Circuit’s earlier decision, in the common law, or in the text or policies of the Act, the Board explained that the newly adopted standard serves “to better effectuate the purposes of the Act in the current economic landscape.”

New joint employer standard. Under the new standard, the Board may find that two or more statutory employers are joint employers of the same statutory employees if they “share or codetermine those matters governing the essential terms and conditions of employment.” In determining whether a putative joint employer meets this standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.

The Board said that it will now examine how control is manifested in a particular employment relationship. The Board rejected those limiting requirements that have been imposed after the Third Circuit’s decision. It will 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 will 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.

Rolling back the decision. In response to the NLRB’s newly announced joint-employer standard, House Education and the Workforce Committee Chairman John Kline (R-Minn.) and Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-Minn.) introduced the Protecting Local Business Opportunity Act, which would roll back the NLRB ruling and reaffirm that an employer must have “actual, direct and immediate” control over an employee to be considered a joint employer—the same standard that was in place decades before the Board’s recent decision.

The full text of the legislation (S. 2015; H.R. 3459) would amend the NLRA itself by stating that, “Notwithstanding any other provision of this Act, two or more employers may be considered joint employers for purposes of this Act 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.”

At a Subcommittee on Health, Employment, Labor and Pensions, hearing on September 29, Chairman David P. Roe (R-Tenn.) said, “For more than 30 years, two or more businesses were considered “joint employers”—or equally responsible for decisions affecting employees and the daily operations of a business—if they shared “actual,” “direct,” and “immediate” control over those decisions. That standard had been in place for decades, and it had worked well for consumers, workers, and employers.” According to Roe, the Browning-Ferris decision “discarded years of established labor policy to include employers who have ‘indirect’ or even ‘potential’ control over virtually any employment decision. To put it plainly, 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.”

Among the witnesses who offered their take on both the NLRB’s new joint employer standard and the Protecting Local Business Opportunity Act were a former Board Member and a former NLRB senior attorney who served in the agency’s Appellate and Supreme Court Branch. The contrast in their perspectives provides much insight into the sharply contrasting views about the Board’s Browning-Ferris decision.

Restoring Congressional role.Charles I. Cohen, Senior Counsel, Morgan, Lewis & Bockius LLP, previously served on the Board from 1994-1996 as one of President Clinton’s nominees. He said that the Protecting Local Business Opportunity Act “would restore the critical role that Congress should play in formulating our national labor and employment policy and that the bill “constitutes a measured response to the NLRB’s usurpation of the role of Congress in defining ‘employer’ under the NLRA.” Cohen said that during his 45 years of practicing labor law, he could not recall “a single Board decision so rife for potential abuse and mischief, nor one that would intrude the NLRB into the contractual relationships for so many industries and companies.”

Helping unions? Cohen said the Board’s Browning-Ferris decision “is all about enhancing union leverage in situations where independent companies are not responsible for the employees of other companies.” He explained why Congressional action is necessary to “reverse the NLRB’s overreach on the joint employer doctrine.”

To what entities does the new standard apply? Cohen echoed concerns about how the new standard will be applied. “This new ambiguous standard has the potential to apply to a wide variety of business relationships in which one employer contracts for the work of another business entity’s employees, including outside suppliers and on-site contractors,” Cohen explained. “Based on the decision’s faulty rationale, a future NLRB decision could extend to the franchise model as well.”

Essential terms and conditions of employment. Cohen pointed out that the NLRB “did not confine itself to potential, indirect, and unexercised control,” but rather, “went on to expand the terms and conditions of employment that would meet the potential/indirect control standard.” As a result, ‘“essential terms and conditions of employment’ will not be limited to the core subjects of wages, hours, hiring, firing, and discipline,” he said. “It also will include subjects such as the number of workers to be supplied, scheduling, overtime, productivity, work assignments, and ‘the manner and method of work performance.’” He also predicted that the Board “will rely on the thinnest of anecdotal evidence of isolated involvement or oversight in any of these areas to deem the putative joint employer in ‘control,’ thereby deploying a trip wire for business operations and imposing a virtually impossible standard for policing and managing contractor relationships.”

Impact on collective bargaining. The Morgan, Lewis & Bockius attorney noted that the Board also “held that a joint employer will be required to bargain ‘only with respect to such terms and conditions which it possesses the authority to control,’” which he said “could create a bizarre dynamic at the bargaining table and require a joint employer to be involved in bargaining on some subjects but not others.” According to Cohen, “Collective bargaining typically involves many tradeoffs that would be unworkable under this approach.” He said for this reason, among others, the Board is not just “returning to the ‘traditional’ test for joint employer status that existed more than 30 years ago,” but rather, “has created a whole new scheme for defining joint employer—or partial joint employer—status and collective bargaining obligations under the Act.”

Departure from “actual evidence” approach. Cohen described what he thought might be the “most disingenuous aspect” of the NLRB’s Browning-Ferris decision: “Over the last several years, the Board adopted a directly contrary approach to that adopted here where that 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.[]”

Return common-law principles.Marie Lofaso, professor at West Virginia University College of Law, offered a very different perspective on the NLRB’s Browning-Ferris decision. Lofaso teaches labor and employment law and serves as the Director of the law school’s Labor and Employment Law Certificate Program. She was also previously a Senior Attorney at the NLRB, where she served for a decade in agency’s Appellate and Supreme Court Branch.

“It is incorrect to call this definition a radical departure of long-standing law,” Lofaso said of the new joint employer standard. “Browning-Ferris returns Board precedent to traditional common-law principles.” She acknowledged that Browning-Ferris overrules administrative precedent starting in 1984 with Laerco Transp. (269 N.L.R.B. 324 (1984)) and TLI, Inc. (271 N.L.R.B. 798 (1984)) and continuing with its progeny. “But those cases are actually the radical departure from, at that point, over half a century of common law,” according to Lofaso. “Browning-Ferris merely removes the limiting language added by those cases, language which has no connection to the NLRA’s plain language or to the common law.” Underscoring what the recent Board has pointed out, “those cases mark ‘a 30-year period during which the Board—without any explanation or even acknowledgement and without overruling a single prior decision—imposed additional requirements that effectively narrowed the joint-employer standard.’”

The difference between the two standards, according to Lofaso, “is the same as the difference between possessing and exercising power.” She explained it this way: “Whereas the common law will hold a person to the duties of a joint employer if it possesses power, even if that person does not exercise those powers, the Laerco definition only permits a finding of joint-employer status where the putative joint employer actually exercises that power. The Laerco definition thereby runs counter to both the plain language of the act and the common law. The plain language expressly defines employer as ‘any person acting as an agent of an employer, directly or indirectly,’…and does not limit the employment relationship to ‘the employees of a particular employer.’” Citing the RESTATEMENT OF AGENCY Section 220 cmt. d., Lofaso said, “The common law reveals that ‘the control or right to control needed to establish the relation of master and servant may be very attenuated.’”

Legal grounds. Lofaso also found no grounds on which the NLRB’s return to the common law is could be said to be legally unsound. “The definition harkens a return to the common law, which has been tested in all types of economies including the industrial-military complex of the early twentieth century to the service economy of the late twentieth century and the information economy of the early twenty-first century,” she observed. “The definition fulfills the purpose of the NLRA to ‘encourag[e] the practice and procedure of collective bargaining’ by ordering to the bargaining table those who have control of mandatory bargaining subjects.”

Impact on small franchisees. Lofaso ticked through several non-legal reasons cited by those who oppose the new joint employer standard and favor legislation to roll back the Browning-Ferris decision. With regard to the claim that small franchisees will lose their businesses if the decision stands, Lofaso said, “This speculative argument is supported by no evidence. Indeed, the only evidence available—the U.S. economy during the pre-Laerco era, belies this bald assertion. There simply is no evidence that the franchise business model did not flourish prior to 1984.”

Killing the American dream? The professor also addressed that claim that the Browning-Ferris decision takes the American dream out of the reach of small businesses. “As a threshold matter, this argument assumes that only business owners have a right to the American dream,” Lofaso said. “In reality, employees and employers must work together to realize that dream. That collaboration also means, at least in some cases, that employees are entitled to share in decisions affecting their working lives, which in turn sometimes means that small businesses will be brought to the bargaining table to discuss those decisions.”

Stability of the law. As to the notion that the Protecting Local Business Opportunity Act is necessary to bring stability to the law, Lofaso had this to say: “That argument ignores two important facts: (1) the Board’s Browning-Ferris standard has been the Board’s standard for 50 of its 80 years and the common law standard since before 1933; and (2) the proposed legislation does nothing to alter the common law, under which all businesses currently operate.”

Franchise business model. Lofaso also countered the claim that the Browning-Ferris decision interferes with business by upending the franchise business model. She said there is no evidence of this, citing at least two reasons: “(1) franchisors concerned about joint-employer liability are more likely to give franchisees more autonomy rather than less autonomy over terms and conditions of their employees; and (2) the franchise business model flourished for many years under the very same standard articulated in Browning-Ferris prior to 1984.” Lofaso said that the proposed new standard in the Protecting Local Business Opportunity Act “is unnecessary to preserve the franchise business model.”

Collective bargaining rights. The Protecting Local Business Opportunity Act would have a negative impact on employees and their right to bargain collectively, according to Lofaso. “[T]he proposed legislation does grave harm to—dare I say, kills the American dream of—the millions of employees who work for those small businesses by rendering bargaining futile in cases where a joint employer retains control, but which control is not ‘immediate’ or ‘direct.’”

The Browning-Ferris decision, “like the common law of the past century, understands that the law plays a role in ensuring that those who control the plight of others are accountable for that control,” according to Lofaso. “The Board’s Laerco decision, by contrast, allows some of those in control, namely those who retain the right of control, to dodge their duty to bargain in cases where employees, frustrated with working terms and conditions, have voted for union representation. This scenario serves to frustrate rather than encourage the practice and procedure of collective bargaining.”