NLRB Restores Coercive Obama-Era Joint Employer Rule; Confusion Remains

For several years unions have been waging a furious battle to force large employers to collectively bargain alongside their contractors and franchisees, even if they have next to nothing to do with workplace operations. Now, once again, the National Labor Relations Board must address the central question: What is an employer? Last December the NLRB reversed its Obama-era ruling in Browning-Ferris Industries that widened the basis for classifying a parent company as a “dual” or “joint” employer. In Hy-Brand, the board, by 3-2, ruled that the old standard must apply. This restoration would be brief. Weeks later, the board, faced with a conflict-of-interest issue, withdrew its decision. For now, organized labor has prevailed. But the fate of the controversy may lie in the courts.

Union Corruption Update visited this deceptively crucial issue in July 2014 and again in September 2015. In each case, the focus was the National Labor Relations Board’s review of a northern California case, Browning-Ferris Industries of California [362 NLRB 1986 (2015)]. At issue was the right of Sanitary Truck Drivers and Helpers Local 350, a Teamsters affiliate, to negotiate on behalf of workers at a recycling plant. BFI owned the plant. Yet an outside contractor, Leadpoint Business Services, set wages, benefits, schedules and other labor standards. For all intents and purposes, employees answered to Leadpoint. But the Teamsters, knowing that Browning-Ferris had far deeper pockets, and thus had more leeway to make concessions during contract talks, wanted the parent company reclassified as a dual employer. Browning-Ferris countered that because it did not exercise “direct and immediate” control over the workplace, it was not such an employer.

The union responded by filing suit against Browning-Ferris with the NLRB’s Oakland Regional Office. The regional director, George Velastegui, favored the Teamsters, and in August 2013 ordered a representation election held. Balloting took place the following April. Including BFI in the negotiations, however, would require not just an election victory, but a reinterpretation of labor law. Based on the evidence, Velastegui ruled that BFI and Leadpoint were not joint employers. In addition, he ordered all ballots impounded. The union appealed to NLRB headquarters in Washington, D.C. Strategically, it was a smart move. For one thing, the pro-union (i.e., Democratic) faction on the board now held a majority, a fact owing to the longstanding custom of ensuring that the 3-2 majority reflected the party in power. For another, then-NLRB General Counsel Richard Griffin, an experienced union lawyer prior to coming to the board, in July 2014 submitted an amicus brief recommending that the board apply a broader standard for defining a joint employer, one taking into account potential as well as active control.

Griffin’s office already had begun investigating allegations of unfair labor practices at various McDonald’s restaurant outlets. That December, NLRB took this advice in filing complaints against McDonald’s and more than a dozen corresponding franchisees. The suits worked in favor of the Teamsters in the BFI/Leadpoint case. In August 2015 the NLRB ruled 3-2 that BFI of California Inc. exercised enough control over the hiring, firing, scheduling and other aspects of personnel policy to qualify as a joint employer. The majority held that although BFI’s control was not “direct and immediate,” it amounted to control all the same. It also ordered that the impounded ballots be counted.

The ruling represented a sharp departure from three decades of established precedent. In a pair of precedent-setting 1984 cases, TLI Inc. (271 NLRB 798) and Laerco Transportation (269 NLRB 324), the National Labor Relations Board had spelled out its basis for dual employer status: “direct and immediate” control. In other words, to require a large employer to collectively bargain, one must establish that the employer played a central role in setting wages, benefits, floor safety and other workplace terms and conditions, and with substantial face-to-face contact with employees. Simply reserving the right to exercise workplace authority is not exercise in itself. Unions put forth a far different argument: Major companies use third-party entities to avoid negotiating with a union. Thus, they are employers regardless of whether their control is direct or indirect.

The captive-employer principle advanced by the unions may look sound on the surface, but on closer inspection, it is manifestly unfair to the parent company and employees alike. For just as employees have the right to organize, they also have a right not to be organized. Contracting, franchising and self-employment allow employees greater flexibility in planning their careers and work schedules. The idea that a corporation and a franchisee ought to be yoked together for collective bargaining purposes is every bit as coercive as “security” contract clauses that force employees to choose between paying union dues or losing their jobs. Unions are fully aware that they are better able to force the hand of a large employer during contract talks than if they were to deal solely with a smaller third-party employer. To broaden the definition of a dual employer to hypothetical exercises of control, they could corral the parent firm to the bargaining table.

Employers understandably were not happy with Browning-Ferris. But the election of Donald Trump as president signaled a possible reversal. Once in office, he nominated a pair of Republicans, Marvin Kaplan and William Emanuel, to fill two National Labor Relations Board vacancies; the full Senate approved each nominee in close, party-line votes. By the end of the year, that signal became reality. On December 14, 2017, the board, in Hy-Brand Industrial Contractors, Ltd. (365 NLRB No. 156), voted 3-2 to reinstate the traditional standard. Once again, a joint employer finding would require proof that the parent company exercises direct and immediate control over terms and conditions of employment; proof of indirect control is not sufficient to establish a joint employer relationship.  The majority, consisting of Members Kaplan and Emanuel, and Chairman Philip Miscimarra, drew heavily upon arguments made by Miscimarra in his dissent in Browning-Ferris. Impetus for a permanent reversal also came from Congress in the form of a bill, the Save Local Business Act (H.R. 3441). The measure, introduced last July by Rep. Bradley Byrne, R-Ala., would reinstate the traditional joint employer test, as applied to the National Labor Relations Act and the Fair Labor Standards Act. The House passed the measure in November by 242-181. The Senate, true to form, has delayed action and has yet to hold a hearing.

Senate inaction aside, victory has proven tentative. The ruling in Hy-Brand was not as dramatic as it might appear. Hy-Brand, a small Iowa-based firm, was a contractor for a larger firm, Brandt Construction, based in Milan (near Rock Island), Ill. The two companies overlapped to the point of sharing the president, vice president, secretary and treasurer. Control by Brandt Construction thus appeared to be direct and immediate. That was why when several Hy-Brand workers a few years ago went on strike over wages, benefits and working conditions, they brought forth unfair labor practice charges against both firms. An Administrative Law Judge, applying the Browning-Ferris standard, ruled that Hy-Brand and Brandt were dual employers and thus had to bargain side by side. The NLRB, rather than challenge this conclusion, endorsed it, arguing that the companies qualified as joint employers even under an employer-friendly standard. Yes, the board overturned Browning-Ferris, but in a rather weak case.

This became moot in short order. This February 26, the National Labor Relations Board, by 3-0, vacated its Hy-Brand ruling on the grounds that a member of the majority, William Emanuel, previously had worked for a law firm that had represented a party in the case. Because Emanuel should have excused himself from participation, the board held that its own decision was null and void. While the argument that a conflict of interest had taken place is questionable, for now Browning-Ferris once again reigns.

But it may not be for long. The author of the Hy-Brand ruling, Philip Miscimarra, citing personal reasons, resigned from the board last December 21 with the expiration of his term, and returned to his old firm of Morgan, Lewis & Bockius. President Trump subsequently named another Morgan, Lewis & Bockius alumnus, John Ring, to take his place. On March 14, the Senate Health, Education, Labor and Pensions Committee approved Ring’s nomination by 12-11. Even if Ring wins full Senate approval, it likely won’t be until after the McDonald’s cases are resolved that another test case reaches the NLRB docket. And those cases, now before an NLRB Administrative Law Judge, have been a work in progress since March 2016. Adding to the uncertainty, the U.S. Court of Appeals for the District of Columbia Circuit has yet to decide whether to grant standing to an appeal by Browning-Ferris Industries of California. NLRB General Counsel Peter Robb, sworn in last November, has asked the appeals court to send Browning-Ferris back to the board, but board apparently doesn’t want any part of it.

If and when this web becomes untangled, the issue of defining an employer is not about to go away. Indeed, employers more than ever are farming out jobs to third-party firms, especially as the effects of the costly “Obamacare” health coverage law become more felt. According to a recent study by software maker Intuit, more than 40 percent of the nation’s workforce by 2020 will be contractors, franchisees or freelancers. Such employees ought to have the freedom to decide how to run their work lives. Forcing bargaining upon a distant parent company that does not establish workplace conditions restricts the freedom of all who work for it, whether directly or indirectly. Hopefully, the Browning-Ferris dual employer standard will prove a brief episode in the evolution of labor law.