In letters sent to members of the U.S. House of Representatives and U.S. Senate, franchise business owners from 19 states are urging Congress to address their concerns about efforts to expand the joint employer standard.
“Federal agencies like the Wage and Hour Division and others have capitalized on the NLRB's overly broad joint employment precedent to pursue small business owners under statutes in their jurisdictions,” the letters say, urging passage of the Save Local Business Act (H.R. 3441), legislation the business owners say would “restore the long-standing, traditional definition of joint employment based on ‘actual, direct, and immediate’ control of employees.”
“Franchise business owners and constituents from across the country have seen their state legislatures act to protect their local businesses from the impact of expanded joint employment liability, however state law is preempted by federal labor laws, so no real relief is coming their way until Congress passes H.R. 3441,” says Michael Layman, vice president of federal government relations for the International Franchise Association.
On Oct. 4, the House Committee on Education and the Workforce advanced the legislation sponsored by Rep. Bradley Byrne (R-Ala.) on a 23 to 17 vote. The bill currently has 95 co-sponsors, including bipartisan support from three Democrats. It would clarify what constitutes a “joint employer” and is intended to provide certainty and stability for business owners.
In August 2015, a ruling by the National Labor Relations Board overturned 30 years of precedent by redefining and expanding the concept of “joint employer.” As a result, any company that relies on other businesses for contract labor, or uses a franchise business model for its operations, has much greater risk for labor conditions at those other businesses, even though the original company is a separate entity from those partners. Guidelines released in January 2016 by the Labor Department’s Wage and Hour Division codified the broader definition of what could be considered a joint employer.
Since 1984, the NLRB had recognized companies as independent from the businesses with whom they contract when labor disputes arise, so long as they didn’t share direct and immediate control over terms and conditions of employment. Companies that merely possessed the ability to exercise control without doing so were not considered a “joint employer.”
That standard changed with an NLRB ruling against a unit of Browning-Ferris Industries of California. Under its new standard, the NLRB deems companies to be a joint employer if they exercise “indirect control” over terms and conditions of employment and where they merely have the right to exercise that control. The NLRB held that the new standard would apply retroactively.
The ruling, not industry-specific, covers every company that contracts out for services rendered by those who are not the company’s own employees. It means, for example, that the headquarters of a fast food chain could be held liable for the unfair labor practices of an otherwise independent franchisee. Critics lament that by tossing aside years of settled labor policy, the decision blurred the lines of responsibility for decisions affecting the daily operations of small businesses across the country.
The push for clarity on joint employer status appears to be gaining momentum within the Trump Administration. In a brief statement on June 7, Secretary of Labor Alexander Acosta announced “the withdrawal of the U.S. Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors.”
The National Retail Federation was among those welcoming the announcement that the Labor Department that it would withdraw the “burdensome guidance.” That created “seemingly limitless liability in business to business relationships.”
"The announcement from the Labor Department is an important first step in reversing one of the most onerous regulations imposed by the previous administration on businesses,” Matthew Shay, NRF’s president and CEO, said at the time. “Drastically expanding joint employer liability to hold one business responsible for the actions of another independent business, such as a subcontractor or franchisee, did nothing to protect employees and only created uncertainty that led to more growth-chilling litigation.”
“Retailers hope Congress will build on this progress and put the issue to rest once and for all with clear, fair legislation defining joint employers,” he added.
An attempt at that sort of legislation emerge with the Save Local Business Act. It was born of concerns that, despite the Labor Department move, the plaintiff’s bar and some judges could continue to perpetuate problems.
In January 2017, the U.S. Court of Appeals for the Fourth Circuit adopted an expansive new joint employer standard under the FLSA in Salinas v. Commercial Interiors, Inc.
The new test finds joint employer status under the FLSA where “two or more persons or entities are not completely disassociated …” with respect to their separate workplaces,” a fact sheet from Rep. Byrne’s office says.
“The Fourth Circuit’s test seems to make any relationship or collaboration between two businesses a joint employment relationship because the two entities will not be completely disassociated,” it says. “To make matters worse, Salinas states that ‘one factor alone can serve as the basis for finding that two or more… entities are not completely disassociated.’ This test is even broader than the joint employer test under Browning-Ferris, and has contributed to a growing patchwork of joint employer standards across the country.”
Byrne’s legislation reaffirms that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers under the National Labor Relations Act and Fair Labor Standards Act.
The Save Local Business Act, as approved by committee, amends the NLRA and FLSA by defining joint employer relationships as follows:
“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 essential terms and conditions of employment, such as hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, or administering employee discipline.”