Washington D.C. federal appeals court weighs in on the joint-employer standard

The joint-employer standard will continue to take center stage for those in the franchise industry in 2019. The joint employer standard is the concept that two business entities share sufficient control and supervision of an employee such that they may both be considered an employer and are therefore subject to mutual labor law violations. For almost the last four years, Browning-Ferris Industries of California, Inc. (BFI) has been the primary player in an on-going legal drama, which continues to cause a stir within the business, labor and political worlds. 

The dispute stems from BFI’s contract with Leadpoint Business Services to provide workers for different roles throughout BFI’s large recycling plant. A local union petitioned to represent the Leadpoint workers jointly with the BFI employees at that plant as joint employers. When BFI challenged this in 2015, the National Labor Relations Board (NLRB) ruled, in a 3-2 decision, that a business can be considered a joint employer of another’s workers if it exerts indirect or potential control over those workers’ terms and conditions of employment. Browning-Ferris Indust. of Cal., 362 N.L.R.B. No. 186 (Aug. 27, 2015). 

That decision overturned decades of settled law. The NLRB previously required a showing of direct and immediate control of employees, not just indirect control or potential control of employees, before a company could be deemed a joint employer of another company’s employees for the purposes of collective bargaining and potential liability. At the time of this ruling, the NLRB was controlled by a Democratic majority. 

Subsequent to its Browning-Ferris decision, the NLRB ordered an election at the Browning-Ferris facility, and the employees of the combined bargaining unit voted in favor of the union representing them in joint bargaining with BFI and Leadpoint. BFI responded with a petition for review to the United States Court of Appeals for the District of Columbia Circuit (D.C. Appeals Court) and the NLRB cross-petitioned for enforcement of its order.

Thereafter, the composition of the NLRB changed under a Republican-controlled administration. In December 2017, in a 3-2 decision, the NLRB overruled its Browning-Ferris joint-employer decision in favor of the more direct control standard. Hy-Brand Indus. Contractors, Ltd., 365 N.L.R.B. No. 156 (Dec. 14, 2017). At the urging of the NLRB’s General Counsel, the United States Court of Appeals for the District of Columbia sent the case back to the NLRB for reconsideration in light of the Hy-Brand decision. However, in February 2018, a reconstituted version of the NLRB vacated Hy-Brand due to a conflict of interest concerning one member of the then three-member Republican majority. Hy-Brand Indus. Contractors, Ltd., 366 N.L.R.B. No. 26 (Feb. 26, 2018). The Hy-Brand decision thus reverted to a 2-2 tie and, therefore, the prior Browning-Ferris decision on the joint-employer standard was reestablished. In late 2018, the NLRB initiated a notice-and-comment rulemaking period to fully consider all views on the joint-employer standard. The time for public comment has been extended into 2019. 

Moreover, in November 2017, in an attempt to codify the joint-employer standard, the United States House of Representatives passed the Save Local Business Act (H.R. 3441), with the purpose of amending Section 2(2) of the National Labor Relations Act (29 U.S.C. § 152(2)) and Section 3(d) of the Fair Labor Standards Act (29 U.S.C. § 203(d)). The bill provides that a person may be considered a “joint employer” in relation to an employee only if such person directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment. The bill passed the House, but as of this writing, the Senate has yet to vote on the bill. 

Notwithstanding the ping-ponging decisions of the NLRB, the public rule-making attempts and the proposed Save Local Business Act, the United States Court of Appeals for the District of Columbia ultimately decided to take up BFI’s petition for judicial review of the joint-employer standard and the NLRB’s cross-petition for enforcement of the Browning-Ferris case. On December 28, 2018, a three-member panel of the appeals court upheld, by a vote of 2-1, that common law supported the NLRB’s articulation of the joint-employer test, including a consideration of both i) an employer’s reserved right to control and ii) an employer’s indirect control over employees’ terms and conditions of employment. Browning-Ferris Industries of Calif. Inc. v. NLRB, No. 16-1028, D.C. Cir. (Dec. 28, 2018). However, the appeals court found that the NLRB failed to confine its consideration of indirect control consistently with common law limitations when analyzing the BFI and Leadpoint situation described above. In so finding, it granted BFI’s petition in part, denied the NLRB’s cross-application for enforcement, dismissed the NLRB’s application for enforcement as to Leadpoint, and remanded the matter back to the NLRB for further proceedings. 

In short, the recent opinion of the United States Court of Appeals for the District of Columbia does affirm that franchisors might be considered “joint employers” of a franchisee, or vice a versa, even if they don't exercise direct control over the other company. This potential linkage could subject the franchisor to the franchisee’s unionization drives or make it jointly liable for the other’s violations of the law. The matter remains far from settled, however, as there are a variety of legal, administrative and political considerations in play before the joint employer standard becomes truly settled law. For example, the parties could appeal the recent decision to a full panel of the circuit to hear the case, which may yield a different result. 

Alternatively, since the court ordered the case should be sent back to the NLRB to identify which specific factors led it to conclude that BFI was a “joint employer,” such a remand could cause the now Republican-controlled NLRB to reject its Browning-Ferris standard and revert back to the old direct control standard that existed for 30 years prior (as it attempted to do in the Hy-Brand matter). At that point, once a final rule is issued by the NLRB, such rule may be challenged in a different federal appeals court, and this confusion could cause a potential split among the circuits that would warrant Supreme Court review. Finally, Congress could finally approve the Save Local Business Act, which would create a legislative, rather than an administrative, joint-employer doctrine. This latter approach would resolve many of the contested matters pending before the NLRB involving the joint-employer standard and finally provide clarity for franchisors and franchisees on the issue.