Legislative and Regulatory Update | Legal and Regulatory Compliance

NLRB Reverses ‘Joint Employer’ Decision

Legislative and Regulatory Update | Legal and Regulatory Compliance

NLRB Reverses ‘Joint Employer’ Decision

Although joint employer status is less likely now in the wake of recent NLRB decisions, hospitals are cautioned to involve labor relations counsel in drafting any subcontracting or outsourcing arrangements. 

Given the number and type of relationships hospitals and health systems have with outside entities, a finding of joint employer status can present significant monetary exposure.


In a sudden and important reversal of precedent, the National Labor Relations Board (NLRB) has overruled the Browning-Ferris Industries (BFI) case regarding “joint employer” status under the National Labor Relations Act (NLRA) and has reinstated the prior standard.  

The joint employer doctrine is one of the most far-reaching in labor and employment law. The doctrine permits the imposition of legal liability on an entity that was not aware of, did not participate in, and did not authorize or condone acts of another employer with whom it has a business relationship. Under the NLRA, a finding of joint employer status could require a “user employer”—one who contracts for the use of another company’s employees—to bargain collectively with a union that has successfully organized a “supplier employer” (the leasing company). A user employer that is found to be a joint employer may be liable for the unfair labor practices of the supplier employer and may also be exposed to liability under other laws. 

“Given the number and type of relationships healthcare organizations have with outside entities such as nurse staffing agencies and contract coders, a finding of joint employer status can present healthcare providers with significant monetary exposure,” according to G. Roger King, employment counsel at the HR Policy Association, an advocacy group for chief human resource officers of major companies and hospitals. King adds, “The fact that Browning-Ferris has been reversed is really good and important news.” 

Background

King explains that prior to the NLRB’s 2015 decision in the BFI case there was a widely accepted “bright-line” standard for defining joint employer status: a user employer had to exercise actual control over a supplier company’s workforce to be considered a joint employer. Evidence that the user entity had merely reserved the right to exercise control would not result in joint-employer status. Under the BFI decision, however, even when two entities had never exercised joint control over essential terms and conditions of employment of the respective workforces, and even when any joint control was not direct and immediate, the two entities could still be considered joint employers based on the mere existence of reserved or indirect control of the other entity’s workforce.

The case involved the recycling company BFI of California (BFI) and Leadpoint Business Services (Leadpoint), which supplied workers to a BFI recycling plant. BFI set the general hiring standards for Leadpoint employees and reserved the right to terminate Leadpoint workers for safety and other serious work violations. BFI set the facility’s schedule, set performance standards, and controlled certain other aspects of the Leadpoint employees’ work. BFI also indirectly set pay scales by prohibiting Leadpoint from paying more to its employees than BFI paid to its workers. Leadpoint exclusively hired its employees, controlled the details of their daily work, and maintained an office on BFI’s worksite.

Based on these specific facts, the three-person NLRB majority determined that BFI and Leadpoint were joint employers and were therefore jointly liable for an unfair labor practice during a union organizing campaign. To support their decision, the majority set forth the new “reserved or indirect control” standard.

BFI appealed the NLRB’s decision to the U.S. Court of Appeals for the District of Columbia, where a broad-based coalition that included the American Hospital Association joined in support. In their briefs, the amicus groups argued that the new standard was so ambiguous that it would threaten many types of business relationships—temporary staffing arrangements, franchises, subcontracting, outsourcing, and even new business models—and would lead to increased litigation and unnecessary regulatory oversight. They contended also that the NLRB’s standard would discourage user employers from providing useful benefits such as safety training to supplier employees.

It should be noted that the case is somewhat curious in that given BFI’s degree of actual control over the Leadpoint employees, a finding of joint employer status could have been made under the old standard had the then majority of the board not wished to proclaim a new precedent.

The Hy-Brand Case

Then came the new NLRB case, Hy-Brand Industrial Contractors, which began after BFI was decided. It involved two nominally separate construction companies that were owned and jointly managed by members of one family. The companies’ operations were essentially merged and virtually identical, thus the administrative law judge found that they are joint employers and that they are “jointly and severally liable” for the unfair labor practice of terminating striking employees. 

By the time their appeal came up to the NLRB for decision, the membership of the board had changed, and the position of BFI dissenting member Philip Miscimarra commanded a majority. This new majority—Miscimarra plus new Republican members Marvin Kaplan and William Emanuel—agreed with an administrative law judge’s finding that the companies were joint employers and that they had committed unfair labor practices. But after saying so in a few words, the majority used the rest of the opinion to explain why the legal standard the judge applied—namely, that of BFI—was wrong.

Adopting the earlier dissenting opinion of Miscimarra virtually word for word, the Hy-Brand majority—with Miscimarra now as chair—declared that BFI “is a distortion of common law as interpreted by the board and the courts, it is contrary to the act [NLRA], it is ill-advised as a matter of policy, and its application would prevent the board from discharging [its responsibility] to foster stability in labor-management relations.”

The new majority went on to describe five major problems that they identified in the earlier decision:

  • It exceeds the NLRB’s statutory authority.
  • Its rationale relied on the incorrect notion that today’s labor conditions are radically different than those that came before.
  • The pre-BFI standard should only be changed by Congress.
  • It abandoned a “longstanding test that provided certainty and predictability, replacing it with a vague and ill-defined standard.”
  • To the extent that it sought to correct a perceived inequality of bargaining leverage, expanding collective bargaining to an employer’s business partners was the wrong remedy.

In concluding their opinion, the Hy-Brand majority ruled:

[A] finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control), the control must be “direct and immediate” (rather than indirect), and joint-employer status will not result from control that is “limited and routine.”

Implications

As King points out, “The Hy-Brand decision is a favorable result for hospitals and other healthcare organizations because virtually every healthcare facility uses outside agencies to augment their workforce.” Furthermore, the healthcare field is a significant target for union organizing activity, and the murky standards of BFI threatened to expand employer liability in union organizing campaigns.

King adds, “The logic of the BFI decision, if taken to extremes, could have been used by regulators or plaintiffs in cases involving more than the NLRA. For example, the BFI “rationale” could have resulted in joint employer liability under the Fair Labor Standards Act, Occupational Health and Safety Act, federal and state employment discrimination laws, and even general tort liability.”

He points out that there was enough interest in overturning BFI that a member of Congress introduced H.R. 3411, to limit its scope. The “Save Local Business Act,” which passed the U.S. House of Representatives last November with strong Republican support and with eight Democratic votes, stated that a person or entity will be considered a joint employer only if it “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the 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.”

The legislation, if enacted into law, would amend the NLRA to accomplish legislatively what the Hy-Brand case did administratively. It would apply to the Fair Labor Standards Act as well. 

The bill is currently pending in the U.S. Senate, and at the request of the NLRB the Court of Appeals recently remanded the BFI case to the board for further consideration in light of the new precedent set by Hy-Brand.

Although joint employer status is less likely now in the wake of Hy-Brand, hospitals are cautioned to involve labor relations counsel in drafting any subcontracting or outsourcing arrangements.

See related tool: Checklist: Minimizing Joint-Employer Status

References:

Appropriate bargaining units in healthcare: 29 C.F.R. § 103.30


J. Stuart Showalter, JD, MFS, is a contributing editor for HFMA (showalter.stuart@gmail.com).

Interviewed for this article: 

G. Roger King is senior labor and employment counsel for the HR Policy Association, Washington, D.C (rking@hrpolicy.org).

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J. Stuart Showalter

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