Tag: joint employer

February 23, 2021

PRO Act Reintroduced To Expand Federal Labor Rights

The Protecting the Right to Organize Act (PRO Act) was reintroduced in the U.S. House of Representatives on February 4, 2021. The House passed this bill in 2020, but it was dead on arrival in the then-Republican-controlled Senate. As proposed, the PRO Act remains unlikely to win Senate approval this year. However, Democrats will continue to advocate vigorously for its sweeping pro-labor measures.

PRO Act Targets – What Laws Would Change?

The full PRO Act aims to amend several federal labor laws, including the National Labor Relations Act (NLRA) and the Labor-Management Reporting and Disclosure Act (LMRDA).

These laws currently govern the relationship between employers and labor unions in private (non-government) workplaces. They address how employees organize to engage in collective bargaining and things like what public disclosures unions must make about their finances. The NLRA also provides direct protections to employees who are not represented by unions.

Expanding Worker Coverage

The PRO Act includes several measures to expand the NLRA’s rights to more workers. It does this by classifying more workers as “employees.”

Independent Contractors

The NLRA covers “employees,” which is defined to exclude some workers in a workplace. One excluded category includes individuals who are off the employer’s payroll, but still provide services for the company. Often identified by receiving a Form 1099 vs. a W-2 for tax purposes, these workers are considered “independent contractors.”

The PRO Act would expand the universe of employees by further limiting those who qualify as independent contractors.

An individual would only qualify as an independent contractor if all of the following apply:

The individual is free from the employer’s control in connection with the performance of the service.
The service is performed outside the usual course of the business of the employer.
The individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

Supervisors

Recognizing that a business must have a management team to represent it in dealing with unions, the NLRA excludes “supervisors” from the group covered as employees.

Currently, a supervisor is “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

The PRO Act would fundamentally change the definition in two ways. First, it would remove “assign” and “responsibly to direct” from the list of supervisory duties. Second, it would require that one or more of the remaining functions occupy “a majority of the individual’s worktime.” The result would be fewer “supervisors” and more “employees.”

Joint Employers

The National Labor Relations Board (NLRB), which administers the NLRA, has vacillated on its joint employer standard in recent years. The question is whether two separate business entities both qualify as an employee’s employer. Typical scenarios involve staffing agencies and franchised businesses.

With a current Republican majority, the NLRB has returned to a less expansive interpretation of joint employer status. This approach is generally considered good for business and not as beneficial for employees, or at least unions. The PRO Act would codify a broad joint employer standard. A company would qualify as an individual’s employer even with only indirect control or reserved authority to control the work relationship.

Expanding Workers’ Rights

Some aspects of the PRO Act would diminish employers’ control over their businesses by shifting it to the employees.

Strike Replacements

Unless they have contractually waived the right, employees and their unions may strike to gain bargaining leverage with their employers. Under longstanding law, employers have the right to hire permanent replacements for striking workers in many situations. The PRO Act would strip employers of that right to make it harder for companies to operate without striking workers. It would also enable unions to engage in “secondary” picketing, strikes, or boycotts in support of a third-party company’s workers.

Lockouts

The flip side of going on strike, employers may “lock out” their employees (i.e., keep them from working) during contract negotiations. The PRO Act would prohibit lockouts before the union has initiated a strike.

“Captive Audience Meetings”

The NLRA allows employers to hold meetings where they share their views on a union organizing campaign with employees. Attendance may be mandatory, as the employees are being paid, but employers must stay within legal parameters on what they say.

The PRO Act would make such meetings illegal despite continuing to permit unions to meet with employees they seek to organize.

Additional Issues

The PRO Act is an omnibus pro-labor bill. It contains virtually every legal change unions would universally like to have made to the NLRA. Beyond those described above, provisions include:

Requiring employers to maintain existing terms of employment indefinitely until a first contract is negotiated with a newly recognized union.
Introducing interest arbitration to establish a first contract, with awards based largely on employee prosperity.
Making misclassification of an employee as an independent contractor a direct violation of the NLRA.
Prohibiting class-action litigation waivers.
Establishing expedited union election rules.
Enabling the NLRB to overrule election results and direct union representation upon a finding of employer interference in a fair election.
Permitting employees to use company email for “concerted activity,” including unionizing activity.
Eliminating “right to work” states by entitling unions to receive “fair share” fees from non-member employees notwithstanding contrary state laws.
Compelling employers to notify all employees, including new hires, of their rights under the NLRA.

Expanding Penalties

The NLRA has never relied on extensive monetary damages to compel compliance. Instead, it emphasizes legally enforceable “make whole” orders that require employers to take action consistent with the law (or refrain from inconsistent action). The law does, however, require employers to compensate employees for lost earnings and benefits connected to unlawful conduct.

The PRO Act introduces a broader array of financial consequences for unfair labor practices. Borrowing from other employment laws, it would make front pay and consequential damages, as well as liquidated and punitive damages and attorneys’ fees, recoverable. But it goes further than other federal employment laws by authorizing double liquidated damages (additional damages equal to twice the lost wages award) and eliminating the common mitigation requirement (allowing employees to recover wages even that they have already earned through alternative employment).

In addition to damages payable to workers, the PRO Act introduces various civil penalties payable to the government. Penalties could reach $50,000, or $100,000 for a repeat offense or one that involves employee discharge or serious economic harm.

The PRO Act would also enable employees to bypass the NLRB and take their claims of NLRA violation to the courts in many situations.

Persuader Activity Disclosure

By amending the LMRDA, the PRO Act would require employers to engage in broader public disclosure of arrangements with consultants related to labor-relations activities. This expansion aims to include representation by attorneys, potentially curtailing the attorney-client privilege.

Study of Foreign Labor Laws

The PRO Act requires the Comptroller General to complete a study of “the laws, policies, and procedures in countries outside the United States governing collective bargaining at the level of an industry sector, including the laws, policies, and procedures involved in” issues related to collective bargaining. Congress would receive this report in support of considering additional changes to U.S. labor laws. Recognizing that many countries have a structural history of more extensive union involvement in business operations, this reporting requirement aims to yield even more pro-labor amendments.

Employers Beware

Simply put, the PRO Act would radically alter the landscape of American workplaces, as is the intent. The balance of power would undeniably shift toward employees and unions in particular.

The current 50-50 split in the U.S. Senate may keep the PRO Act from becoming law in its entirety. Republicans would almost certainly filibuster the legislation to prevent it from coming up for a vote. However, Democrats will not stop trying to legislate for as many of the PRO Act’s components as possible. They may be able to achieve some through the filibuster-proof reconciliation process and perhaps some even through old-fashion political dealmaking with Republican Senators.

So, while the PRO Act’s enactment is not an imminent certainty, the prospect should keep the business community on alert. If the filibuster falls by the wayside and/or Democrats gain a larger majority in Congress, these dramatic labor changes could become a stark reality.

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March 6, 2020

NLRB Finalizes New Joint Employer Standard

On February 26, 2020, the National Labor Relations Board (NLRB) published its final rule on a new joint employer standard. The new rule will take effect beginning April 27, 2020. NLRB Chair John Ring proclaimed, “This final rule gives our joint-employer standard the clarity, stability, and predictability that is essential to any successful labor-management relationship and vital to our national economy.”

Joint Employer Implications

The question of joint employment status under the National Labor Relations Act affects employee rights and employer obligations for private sector companies. Employers found to be joint employers:

must bargain with a union that represents any jointly employed workers,
face potential liability for unfair labor practices that the other employer committed, and
could be subject to union picketing or other economic pressure.

New NLRB Joint Employer Standard

Under the new standard, the NLRB will only find joint employment where a business possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees.

The rule further defines the operative terms of the new standard.

“Essential terms and conditions of employment” means “wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.”

“Substantial direct and immediate control” means “regular or continuous consequential effects”. The rule clarifies that any direct control that is “sporadic, isolated, or de minimis” will not be enough to warrant a finding of joint employment.

The rule contains additional analysis regarding “direct and immediate control” for each of the eight “essential terms and conditions of employment”. For example, “An entity exercises direct and immediate control over wages if it actually determines the wage rates, salary or other rate of pay that is paid to another employer’s individual employees or job classifications.”

History of the NLRB’s Joint Employer Doctrine

Browning-Ferris

The NLRB had relied on a similar employer-friendly joint employment standard for decades until 2015. Then, in a case involving Browning-Ferris Industries of California, a pro-labor NLRB took a more expansive view of the joint employer relationship. In Browning-Ferris, the Board found two businesses to be joint employers where they both met the common law definition of employer and shared or codetermined matters governing the essential terms and conditions of employment. Under Browning-Ferris, an entity could become a joint employer even without actually exercising control over another employer’s employees. It was sufficient that the entity reserved the right to exercise control over the terms and conditions of employment of another employer’s employee.

The International Franchise Association and the U.S. Chamber of Commerce conducted a study on the financial impact of the Browning-Ferris decision on the American economy. They reported that the Browning-Ferris joint employer standard cost the U.S. economy $33.3 billion per year, considering lost jobs, stunting of job growth, and a significant increase in litigation involving franchise businesses.

Hy-Brand

On December 14, 2017, the NLRB issued a unanimous decision in a case involving Hy-Brand Industrial Contractors, Ltd. that overruled the Browning-Ferris joint employer test. The Hy-Brand decision reverted to the pre-Browning-Ferris joint employer standard. However, the NLRB vacated its decision in Hy-Brand after ethics concerns arose regarding Board Member Bill Emanuel’s participation in the case. Member Emanuel had worked for the Littler Mendelson firm when it represented a party that had been involved in the Browning-Ferris case that Hy-Brand reversed. Emanuel explained that he had not known of his firm’s past involvement in that previous case.

Response to the New Joint Employer Rule

Worker Advocate groups and unions strongly opposed the new joint employer standard. They argue that it hurts low-wage, African American, and Hispanic employees and incentivizes businesses that mistreat workers to continuing doing so. Given the strong opposition, legal challenges to the rule are likely.

However, other groups emphasize that the new rule will allow businesses to contract with third parties for the supply of temporary employees with confidence that they will not be responsible for the other employer’s employment violations. This should provide an overall boost to the economy.

Sean P. Redmond, Executive Director of Labor Policy for the U.S. Chamber of Commerce, commented, “the new rule restoring common sense is cause for celebration, to be sure.”

Why Rulemaking?

As in Browning-Ferris and Hy-Brand, the NLRB has historically interpreted the National Labor Relations Act by adjudicating actual controversies between parties. The NLRB took the rulemaking approach here in an attempt to lock the joint employer rule in place and make it less vulnerable to future changes without warning.

The proposed joint employer rule appeared in the Federal Register on September 13, 2018. The NLRB received and considered approximately 29,000 comments from employee rights advocates and businesses.

What This Means for Companies with “Shared” Workforces

The new rule should come as a big relief for franchisors. But it still leaves a gray area in other contexts.

If your company participates in potential joint employer arrangements either through the supply of labor or as the recipient of the services of another employer’s employees, you should review the relevant contractual terms in light of the NLRB’s new standard. You should also reevaluate the policies and procedures governing your company’s relationship with other employer’s employees. Give particular attention to the “essential terms and conditions of employment”: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

Generally, placement and temporary employment agencies should make the employment decisions in these areas. This will help to reduce joint employer claims against both parties, allocating the legal responsibility as usually intended—with the agency taking the role of employer and easing its client’s concerns of joint employer liability.

While this rule is good news for employers, it is critical to watch out for future developments. Beyond the anticipated legal attacks to the rule, a change in NLRB composition could again result in a policy reversal.

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January 17, 2020

U.S. DOL Revises FLSA Joint Employer Standard

On January 13, 2020, the U.S. Department of Labor issued a new rule revising its test for evaluating joint employer status under the Fair Labor Standards Act. Among other situations, joint employer analysis is often critical to work arrangements involving staffing agencies and other outsourcing companies. The FLSA joint employer rule change takes effect on March 16, 2020.

Previous Joint Employer Test

In 2016, the U.S. Department of Labor under the Obama administration issued interpretative guidance that promoted greater scrutiny of joint business relationships. That guidance essentially created a standard whereby employers jointly employ workers whose work for one company “is not completely disassociated” from their work for the other company. This action prompted many businesses to change their traditional business practices for fear of incurring additional and unwanted liability for another party’s employees.

Despite this change in “guidance,” the DOL had not formally changed its joint employer rule since 1958.

Joint Employer Scenarios

The 2020 joint employer rule identifies two possible scenarios where joint employment could exist:

Where the employee has an employer who employs the employee to work, but another person/entity simultaneously benefits from that work.
Where one employer employs a worker for one set of hours in a workweek, and another employer the same worker for a separate set of hours in the same workweek.

The most significant revisions to the DOL’s standard relate to the first of these situations. The most common example arises when one company places its workers at the jobsite of another independent business to perform services. This could be a temporary placement by a staffing agency or a consulting firm, among other arrangements.

New Joint Employer Test

The primary thrust of the rule change lies in a new four-factor balancing test for evaluating joint employer status in the first type of scenario identified above.

The four factors ask whether the potential joint employer:

Hires or fires the employee?
Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree?
Determine the employee’s rate and method of payment?
Maintains the employee’s employment records?

While emphasizing these four factors, the new rule allows that:

“Additional factors may be relevant for determining joint employer status in this scenario, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.”

Irrelevant Factors

The rule also specifically disregards the question of whether the employee is “economically dependent” on the potential joint employer. That subject is now expressly irrelevant to liability under the FLSA.

The DOL identifies the following as factors that assess economic dependence and hence cannot be considered:

Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight;
Whether the employee has the opportunity for profit or loss based on his or her managerial skill;
Whether the employee invests in equipment or materials required for work or the employment of helpers; and
The number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.

The full text, with DOL commentary, of the new FLSA joint emlpoyer rule is available here.

Impact of Joint Employer Status

When two companies qualify as joint employers under the FLSA, they both share responsibilities under the law for workers’ wages. These obligations include the requirement to pay proper minimum wage and overtime.

How Will the New FLSA Joint Employer Test Affect Businesses?

In today’s economy, companies commonly outsource certain facets of their business. This trend has increased the number of outsourcing companies in the market that are willing to take on various services. Companies outsource a range of functions, such as information technology, payroll, or even marketing.

Parties who are outsourcing might want to re-evaluate whether they have joint employer status under the new DOL rule. However, the new standards only govern joint employer determinations under the FLSA. Companies must also consider joint employer status under other state and federal laws, including the Occupational Safety and Health Act, the National Labor Relations Act, and Title VII of the Civil Rights Act of 1964. While many federal agencies are moving toward less restrictive joint employer standards, the opposite is true in some states. Many states have their own minimum wage and overtime laws, for example, and some might trigger joint employer liability even where the FLSA, under the new rule, would not.

As a further caution, and beyond possible legal challenges to the validity of the DOL’s new interpretation of FLSA joint employer status, the 2020 rule’s longevity likely depends on the outcome of the next Presidential election. If a Democrat wins the White House, there is a strong possibility that this rule would be among a substantial package of workplace regulations that the next administration would revise once again.

For the above reasons, your company should not overreact to this single development. If potential joint employer liability is material to your operations, the new FLSA rule warrants further evaluation. But again, it would likely not be the only legal parameter affecting your approach to outsourcing and similar business strategies.

Best Practices Regarding Outsourced Staffing Arrangements

Though specific situations might justify alternative allocations of responsibility, here are some standard rules of thumb as a starting point for setting up or maintaining staffing transactions.

Whenever possible, the employer of record should be making all decisions with respect to conditions of employment, pay and method of payment, schedule, disciplinary actions, employee onboarding, and the maintenance of a personnel file. To the extent practical, that entity should also have direction and control over the work being performed. Almost every joint employer test used by government agencies focuses on those components. To reduce potential liability, companies should work together to modify any factors in the business relationship that raise red flags.

Businesses that are linked and jointly (or arguably jointly) employ workers should use this development as an impetus to review current contracts between the parties to make sure their respective responsibilities are in proper alignment. This review should include ensuring that liability and indemnity for claims have been addressed properly and fairly. Doing so can reduce exposure for both companies. You may want to engage the assistance of an attorney with co-employment experience to review the terms of your current contracts or assist with drafting an agreement to be used moving forward.

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