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eLABORate: New Year, But Joint-Employer Standard Remains Unclear

January 10, 2019

As we enter 2019, the NLRB’s employee-friendly standard for determining joint employer status under the National Labor Relations Act remains unclear. As we previously reported, the Board is currently engaged in rulemaking to set a joint employment standard through regulation, and this new standard is expected to limit joint employer status to only those situations where an entity exercises direct control over employees’ essential terms and conditions of employment. This has been an issue that has raised serious concerns in recent years among franchisors, contractors, and other employers who contract with outside entities. For example, would a national fast food franchisor be jointly liable for alleged employment law claims brought by the employees of a local franchisee? However, a recent appellate court decision signals that the Board’s rulemaking may only lead to further litigation.

On December 28, 2018, the D.C. Circuit Court of Appeals upheld the joint employer standard created by the NLRB in its 2015 Browning-Ferris decision. The current lack of clarity stems from that decision, in which the Board overturned 30 years of precedent defining how employers would be considered “joint employers” under the NLRA and ruled that an employer’s “reserved right to control the workers at issue” and “any indirect control exercised over the workers” were factors relevant to determining joint employer status.

In affirming the Browning-Ferris joint employer standard, the D.C. Circuit found that an employer’s “authorized but unexercised forms of control” and “indirect control over employees’ terms and conditions of employment” are both relevant considerations that are recognized in the common law. Focusing on the “indirect control” factor, the court emphasized that indirect control must pertain to the essential terms and conditions of the workers’ employment. Yet, the court found that the Board in Browning-Ferris “failed to confine [the factor] to indirect control over the essential terms and conditions of the workers’ employment.” The Board also did not provide any blueprint for what counts as “indirect” control for purposes of determining joint employer status. The court thus remanded the case to allow the Board an opportunity to explain and apply the indirect control factor.

For employers, the D.C. Circuit’s decision signals that both reserved control and indirect control over essential terms and conditions of employment are factors properly considered when determining joint employer status. It is unclear how the D.C. Circuit’s decision may impact the Board’s current rulemaking process related to the joint employer standard, but the decision underscores the fact that the Board’s rulemaking “is bounded by the common law’s definition of a joint employer,” which the court found properly includes both reserved control and indirect control over essential terms and conditions of workers’ employment. Because the anticipated standard is expected to narrow joint employer status to those situations involving direct control, the decision suggests the Board’s anticipated standard will likely lead to more litigation in this area.