A divided National Labor Relations Board has proposed a new rule that raises the bar for establishing joint-employer status, effectively reversing one of the board’s more controversial decisions issued when it was controlled by appointees of President Obama.

Under the proposed rule published for comment in September, a business can be found to be a joint employer of another company’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment.

Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.

Management-side attorneys view the proposed rule as a return to the consistency and predictability of a joint-employer test in place for decades prior to the NLRB’s 2015 decision in Browning-Ferris Industries of California, Inc.

Corey F. Higgins, a management-side lawyer in Worcester, Massachusetts, said he expected the NLRB to adopt a final rule along the lines of the proposed rule.

“The proposed rule can certainly give some clarity to the business community and address some of the concerns that businesses have about being made subject to the joint-employer standard, even when they don’t have direct and immediate control over the terms and conditions of employment of another entity’s employees,” Higgins said.

But union-side attorneys see the rule as seriously undermining collective bargaining rights in a modern economy in which labor is frequently provided through contractor/subcontractor and franchisor/franchisee business relationships.

“What it does is insulate employers who have de facto control over a subcontractor or a franchisee by setting an almost insurmountable legal standard to establish joint-employer status,” said Marc B. Gursky of North Kingstown, Rhode Island.

New rule

A finding of joint-employer status has significant consequences for businesses. For example, each joint employer can be found jointly and severally liable for unfair labor practices committed by the other.

Moreover, a joint employer may be compelled to bargain in good faith with the bargaining representative of the jointly-employed workers. That is an obligation that should not be underestimated considering that contract terms and franchise agreements can limit the ability of subcontractors and franchisees to meet worker demands.

“Collective bargaining is only truly effective when you can force to the table the company that has the ability to make the changes in the workplace that the employees are demanding,” said Boston’s James A.W. Shaw, who represents unions and employees.

The rule proposed by the board essentially codifies the joint-employer test as formulated in board decisions dating from the early 1980s. The rule states that an employer as defined under the National Labor Relations Act “may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.”

The rule further states that a putative joint employer “must possess and actually exercise substantial direct and immediate control” over the essential terms and conditions of employment in a manner that is “not limited and routine.”

Publication of the proposed rule in the Federal Register on Sept. 14 commenced a 60-day public comment period.

“The proposed rule can certainly give some clarity to the business community and address some of the concerns that businesses have about being made subject to the joint-employer standard.”

— Corey F. Higgins, management-side lawyer

‘Browning-Ferris’ revisited

Board members Marvin E. Kaplan and William J. Emanuel joined board Chairman John F. Ring in proposing the new rule. All three are appointees of President Trump. The board’s lone Democratic holdover, Lauren McFerran, wrote a dissent to the proposal.

McFerran criticized the majority for taking the unusual step of attempting to change the joint-employer test through its rulemaking authority when the NLRB typically speaks through its case decisions.

“The majority’s decision to pursue rulemaking ensures the Board’s standard will remain in flux as the Board develops a final rule and as that rule, in all likelihood, is challenged in the federal courts,” McFerran wrote.

Nominated by President Obama in 2014, McFerran further pointed out that, unlike the NLRB’s decisions, any final rule would not be given retroactive effect. That would mean that cases arising before the issuance of the final rule would be decided under the Browning-Ferris standard, she wrote.

In August 2015, a divided board in Browning-Ferris significantly relaxed the joint-employer standard. In that case, the majority decided to no longer require proof that a putative joint employer exercised any ‘‘direct and immediate’’ control over the essential working conditions of another company’s workers.

Instead, a company can be deemed a joint employer even if its control over essential working conditions was indirect, limited and routine, or contractually reserved but never exercised. Higgins explained that, under Browning-Ferris, a reservation of rights over the terms and conditions of employment, though not exercised, can be evidence of a common-law agency relationship sufficient to support a joint-employer determination.

“The universe of potential employers who could be deemed to be a joint employer under the National Labor Relations Act is much broader than under Browning-Ferris,” Higgins said.

Employers are right to be concerned that Browning-Ferris “upended” 30 years of precedent, according to Damien M. DiGiovanni, a management-side labor lawyer in Boston.

DiGiovanni’s clients include colleges and universities, which frequently contract out to third parties certain functions such as food services. He said Browning-Ferris had many of those clients worrying about their exposure as potential joint employers of their contractors’ employees.

“The concern for employers is that they’re potentially liable for unfair labor practices for something they had nothing to do with,” he said.

But Browning-Ferris deserves to stand, Shaw said.

“It was a very important decision, particularly in industries where there’s a lot of subcontracting and contracting relationships,” Shaw said. “The way labor law had worked prior to Browning-Ferris really limited some unions’ ability to fully bargain about employees’ complete working conditions.”

The Republican-controlled NLRB did attempt to overturn Browning-Ferris in a 2017 decision, Hy-Brand Industrial Contractors, Ltd.

But that attempt to reverse Browning-Ferris failed when the board earlier this year voted to vacate the Hy-Brand decision. The board’s action was in response to an ethics investigation that concluded Emanuel should have disqualified himself from participating in the case due to an apparent conflict.

“In addition to screwing over workers, this is also going to screw over small companies who are going to bear the brunt of liability when they are forced into a decision that the general contractor or franchisor makes them make.”

— Marc B. Gursky, union-side attorney

By hook or by crook

Shaw said he feared that a rule overturning Browning-Ferris would allow a company to “contract itself out” of obligations it would otherwise have under the National Labor Relations Act.

“If the rule does go through, which is expected, it goes back to that situation where clever corporate contracting becomes a vehicle to ‘lawfully’ evade federal law,” he said.

Shaw noted that it was highly unusual for the NLRB to resort to rulemaking to change its joint-employer standard.

“The NLRB almost never engages in rulemaking,” he said. “It almost always operates adjudicatively.”

Gursky said the board’s decision to resort to rulemaking to address the joint-employer issue represents a transparent effort by the majority to make an “end run” around its failed attempt in Hy-Brand to overturn Browning-Ferris.

He speculated that a lower standard for recusal when the board exercises its rulemaking authority will allow board member Emanuel to vote to approve a final rule, even though apparent conflicts precluded him from participating in Hy-Brand.

“My guess is that the real reason they’re going through this [rulemaking process] is to overrule Browning-Ferris in a way that the disqualified board member could still be a part of it,” Gursky said.

The proposed rule is aimed at limiting the board’s discretion in future cases, according to Michael J. Yelnosky, dean of Roger Williams University School of Law in Rhode Island.

“By codifying the test in a regulation or rule in this way, what the board is trying to do is make [the standard] as clear as possible and give the board as little wiggle room as possible,” Yelnosky said.

He said he expected a final rule to withstand challenges in the courts, though he speculated that Emanuel’s conflict issues may provide the strongest legal argument for those who oppose the rule.

“There’s a question as to whether a board member who had an ethical conflict that prevented his participation in an adjudication can go ahead and participate in a rulemaking,” Yelnosky said. “But because of the nature of rulemaking, I think the answer to that question is ‘yes.’”

As for opponents who might plan to argue that the proposed rule is inconsistent with the NLRA, Yelnosky said he saw little hope for success.

“It seems to me that the statute is capable of bearing this interpretation,” he said. “As long as they go through the [rulemaking] process correctly, then what emerges at the end should be an enforceable rule.”

Though businesses may hope for a reversion to the old joint-employer standard, Gursky pointed out there could be some unintended consequences.

“In addition to screwing over workers, this is also going to screw over small companies who are going to bear the brunt of liability when they are forced into a decision that the general contractor or franchisor makes them make,” he said. “They won’t be able to share that liability.”

But DiGiovanni maintained that liability rightly rests with the entity that actually committed the wrong.

“The way larger companies look at it, if they’re not really involved in the day-to-day operation of the terms and conditions [of employment], they don’t want to be liable for one of their contractor’s misdeeds,” he said.

DiGiovanni said he expected the board to adopt a final rule along the lines of the proposed rule, the key being that unions will be required to show that a company actually exercised control over conditions of employment and not just had the potential to do so.

A “codified” joint-employer rule may be less susceptible to the “shifting political tides” of the NLRB, providing needed consistency and predictability to all stakeholders, according to DiGiovanni.

“Unions are going to need to show that an employer or joint employer actually has some skin in the game,” he said.