September 1, 2015

Labor Law: NLRB’s General Counsel Resurrecting Broader Joint Employer Standard

By Michael C. Saqui


The National Labor Relations Board’s (NLRB) General Counsel is attempting to bring back the dead by advancing a joint employer standard that hasn’t been used in 30 years. This threatens not only big franchisors like McDonald’s, but also processing plants, coolers and companies that use temp agencies, farm labor contractors, or other labor suppliers.

Even if a company exercises little to no control over the employees provided to it, it may still wind up being forced to collectively bargain with a union or answer to unfair labor practice charges alleged against their labor supplier.  The NLRB is also attempting to circumvent any employer input into unionizing temporary workers.  This is a dramatic overreach by an unelected panel appointed at the behest of the Obama Administration.

This obviously creates much greater exposure for employers than under the National Labor Relations Act (NLRA) than any time in the last three decades.  This broad expansion of the zone of liability is reflective of a trend across various levels of government showing the government’s need and desire to have more than one party hooked in as the employer for a union’s ultimate money grab.

To add to the confusion, no single standard for joint employer exists and each bureaucracy has its own special test.  The California Department of Labor Standards Enforcement looks to see how wages are paid to the employee.  The California Employment Development Department focuses on the right of the principal to control the manner and means of accomplishing tasks.  The United States Department of Labor uses an economic realities test.  The California Franchise Tax Board uses a common law test.

Each government agency is drastically pushing the boundaries of what constitutes a joint employer.  The motivation for this is obvious: the more employers and other parties in the supply chain get roped in, the more pockets the unions and their allies in government can reach into.  The noose is tightening around companies that use labor contractors or franchise out their operations.  If this new standard advanced by the general counsel takes hold, it could be an end to the franchise and farm labor contractor system as we currently understand it.

Efficiency and productivity are clearly values that the government has found should come second to red tape and the pocketbooks of union lawyers.  Under our current system, an employer can generally count on avoiding liability for franchisee or farm labor contractor’s conduct by making sure to avoid involving themselves in the human resources function.  Employers are free to exercise control over marketing, signage, pricing, training of managers, hours of operation and methods of preparing their products.

Problems generally arise where the employer gets involved in issues of employee discipline, hiring, firing, compensation rates and work schedules.  This attempt to force a new standard on employers also has the NLRB looking at how they deal with unionization of temporary workers supplied by staffing agencies.

In an obvious attempt to expand the dues paying base for unions, the NLRB is considering bringing back another 15-year-old standard from a case called M.B. Sturgis.  The current rule requires that both the contracting employer and the staffing agency consent to any election.  It is intended to eliminate the confusion that might result from having a contracting employer and a staffing agency bargain separately with multi‐employer bargaining units made up of employees solely employed by the contracting employer and jointly employed by both the contracting employer and the staffing agency.  Under M.B. Sturgis, the right of employers to refuse to be involved in that kind of nonsense is stripped away.  In the general counsel’s view, a client employer is a joint employer anytime they wield sufficient influence over the working conditions of another entity’s employees such that meaningful bargaining could not happen without them.

The two cases to watch are McDonald’s USA, and Browning‐Ferris, both currently pending before the NLRB.  Following a wave of organizing in the fast food industry in late 2012, the general counsel’s office has pursued upwards of 90 cases of unfair labor practices against McDonald’s Franchises alleging McDonald’s USA is a joint employer.

Browning‐Ferris Industries (Case 32‐RC‐109684) involves a client employer who used a company called Leadpoint to supply its workers.  Browning‐Ferris did not have power to recruit, hire, fire, pay, benefits, and gave only minimal instruction on what it wanted done.  Leadpoint had its own human resources department.

Under the old joint employer analysis and as the NLRB regional director under the General Counsel originally decided, Browning‐Ferris was not a joint employer.  However, the Teamsters appealed and the General Counsel agreed that the wrong standard was used in determining a joint employer.  Under the new standard urged by the General Counsel, there should be no distinction on whether a client employer directly or indirectly controls the workers, but rather whether the “industrial realities” make it an essential entity necessary for meaningful bargaining. 

The NLRB invited amicus briefs and the Equal Employment Opportunity Commission (EEOC) has also pushed for this less strict standard for finding a joint employer.  The NLRB has started to use this standard in at least one case, Freshii Development, LLC.  In that case, it appears that even under the new standard, a franchisor that exercises great control over business operations, but avoids the human resources function, can still avoid joint employer liability.  Freshii dictated the franchisee’s business systems, equipment, business formats, methods, procedures, pricing, ingredients, designs, layouts, trade dress, standards, signage, prescribed staffing levels, appearance, service, and job functions. Freshii made it very clear that its sample employee handbooks, job advertisements, and interview questions it provided to franchisees were completely optional.  When franchisees came to Freshii asking for advice on how to handle labor organizing efforts, Freshii stayed out of it, providing no advice.  When its franchisee fired those employees for organizing, Freshii took no action.  Other than passive monitoring, reporting, and initial training of managers and employees at the opening of a franchise, Freshii took no action pertaining to management of individual employees or employee policies.  Even under the new analysis urged by the General Counsel, the NLRB found Freshii was not a joint employer. 

However, this is hardly the last word on Freshii or any of the cases mentioned.  With the high stakes involved and the funding behind the union and their allies in government, this issue will almost certainly make its way through appeals and the Courts. Client employers and franchisors need to be keenly aware of what parameters of the business they are allowed to control, and what parts to stay away from should they wish to avoid exposure.  However, depending on how this new standard is applied, employers’ only option may simply be to accept that they may need to dial back how they dictate business operations or alternatively, take an even more active role in compliance to minimize liability.