Joint employment definition takes a pro-employer turn

A new ruling by the National Labor Relations Board has defined a joint employer as one that exercises “direct and immediate” control over worker activities. For employers, that’s a welcome return to normal after two years of uncertainty.

THE LAW Several federal laws cover the arrangements that define a joint employer. How joint employment is interpreted under the Fair Labor Standards Act could determine how overtime pay is calculated for certain employees. The National Labor Relations Act provides a framework for union organizing; its definition of joint employment directly affects which workers can participate in organizing activity.

In recent years, several decisions by the National Labor Relations Board and the Obama administration’s Department of Labor expanded the definition of joint employment.

In 2015, the NLRB ruled in Browning-Ferris Industries that employers that possess “sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining” are joint employers for NLRA purposes, even when that control is “indirect or potential.”

In 2016, the Obama DOL issued an administrative interpretation saying that courts should broadly interpret joint employment, based on a seven-point economic realities test. (See below.)

Finally, a 4th Circuit Court of Appeals decision in January 2017 appeared to stake out the widest possible joint employment definition when it stated the threshold question was whether two entities are “not completely disassociated” with respect to a worker.

WHAT’S NEW In June 2017, Labor Secretary Alex Acosta rescinded the Obama-era administrative interpretation.

The NLRB general counsel instructed NLRB staff to refer joint employment cases to his office for “alternative analysis,” presumably to consider overturning Obama-era decisions.

A December 2017 NLRB decision—Hy-Brand Industrial Contractors, Ltd.—overruled Browning-Ferris and returned the joint employer determination to its prior standard.

Finally, late last year the House of Representatives passed the “Save Local Business Act,” which attempts to rein in definitions of joint employment. Under this bill, joint employment could only be found if an entity “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over essential terms and conditions of employment” of a worker. This definition would apply both to FLSA and NLRA cases. The bill now goes to the Senate where approval is far from guaranteed.

HOW TO COMPLY Even though the DOL rescinded the Obama-era administrative interpretation, nothing has been issued to take its place for FLSA cases. Nothing would stop courts from using its seven-factor economic realities framework to analyze each case’s specific fact pattern.

1. Directing, controlling or supervising the work performed: The extent to which the potential joint employer controls or supervises the employee’s work beyond a reasonable degree of contract performance oversight. The more control, the more likely the firm is an employer.

2. Controlling employment conditions: The extent to which the employer has the power to hire or fire, modify employment conditions or determine pay. Such control indicates the employee is economically dependent on the potential joint employer.

3. Permanency and duration of relationship: An indefinite, permanent, full-time or long-term relationship by the employee with the potential joint employer suggests economic dependence.

4. Repetitive and rote nature of work: The extent to which the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled or requires little or no training. Unskilled employees are seen as more economically dependent on the potential joint employer.

5. Integral to business: If the employee’s work is an integral part of the potential joint employer’s business, that indicates that the employee is economically dependent on the potential joint employer.

6. Work performed on premises: The employee’s performance of the work on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer.

7. Performing administrative functions commonly performed by employers: If the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, etc. it is likely a joint employer.

Courts do not take a uniform approach to this question, with different circuit courts using slightly different tests. The relationship does not have to tick all these boxes to be an employment relationship.

Until the dust settles …

No matter what Congress does, deciding what constitutes joint employment will still rely on some form of this economic realities test. The difference is more in the assumptions courts will make before testing each factor.

Note that even in the NLRB case reversing Browning-Ferris, the employers were found to be joint employers.

Always check with your attorney to understand which existing precedents apply in your area. When the dust settles, employers may have a more favorable climate on this issue, but we aren’t there yet.