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D.C. Circuit Decision Clouds Joint Employer Battle

At the end of December, the U.S. Court of Appeals for the District of Columbia Circuit upheld a 2015 National Labor Relations Board (NLRB) decision that established a broad test for determining whether two entities could be considered a joint employer for purposes of collective bargaining and alleged labor law violations. The decision, Browning-Ferris Industries of California v. National Labor Relations Board, was a clear victory for those in favor of the broader standard adopted by the NLRB. Given other recent developments, however, that victory may soon prove to be meaningless.

History of the Joint-Employer Test

For decades, in order to determine joint-employment status, the NLRB required actual evidence that a purported joint employer exerted significant control over employees' essential terms and conditions of employment. If it did, that entity could be found liable for labor violations and bound to bargain with the employees' representative before any terms and conditions could be changed, just like any other employer subject to the National Labor Relations Act (NLRA). First enunciated by the U.S. Court of Appeals for the Third Circuit in 1982 and soon adopted by the NLRB, this test remained in place until 2015 when the Browning-Ferrisdecision changed the standard.

The 2015 NLRB Decision

In Browning-Ferris, the NLRB (then dominated by appointees of President Barack Obama) split the joint-employment test into two parts: (1) whether there is a common-law employment relationship between the purported employer and the employees in question, and, if so, (2) whether the "putative joint-employer possesses sufficient control over employees' essential terms and conditions of employment to permit meaningful collective bargaining." In other words—and in a departure from its previous standard—the NLRB would begin to consider that an entity with the right to control employment terms qualified as a joint employer, regardless whether that entity actually exercised such control over the employees in question.

Practically, the NLRB's revised test had the potential to expand greatly the number of entities deemed employers under federal labor law. For example, employers who contract with outside companies for staff and even some of those in franchise relationships could face possible liability and bargaining obligations with little opportunity, under existing contracts and relationships, to prevent such liability from arising.

Not surprisingly, many criticized the decision. In Congress, the Save Local Business Act was introduced in the House of Representatives. If passed, the bill would have amended the definition of "employer" in the NLRA to include the pre-2015 joint-employment test. The bill's text also provided examples of the type of control that would be indicative of a joint-employer relationship, including "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 act passed the House by a vote of 242-181, largely along party lines.

While it was pending, however, appointees of President Donald Trump took over the majority of the NLRB and the General Counsel's office. Quickly, they moved to undo several of the developments that had occurred under the previous regime, including Browning-Ferris. Initially, those efforts took the form of case decisions. In fact, in Hy-Brand Industrial Contractors, Ltd., the NLRB restored its previous standard and overturned Browning-Ferris—only to withdraw Hy-Brand shortly thereafter in the midst of a controversy regarding one member's involvement.

A Republican Board Moves to Overturn ​Browning-Ferris Through Rulemaking

In September 2018, the NLRB proposed to revoke Browning-Ferristhrough formal rulemaking. This process, which requires public notice and the opportunity for comment, takes longer than revisions through decision-making. It also is harder to undo if successful.

The text of the proposed rule tracks the pre-Browning-Ferris standard and provides as follows:

An employer, as defined by Section 2(2) of the National Labor Relations Act (the Act), may be considered a joint-employer of a separate employer's employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. A putative joint-employer must possess and actually exercise substantial direct and immediate control over the employees' essential terms and conditions of employment in a manner that is not limited and routine.

The Standard for Determining Joint-Employer Status, 83 Fed. Reg. at 46, 696-97.

If finalized, the rule would restore the NLRB's pre-Browning Ferris test by holding that an employer must not only possess the power to act, but must also use that power in fact to be deemed a joint employer.

D.C. Circuit Decision

While the NLRB wrestled with how to handle Browning Ferris, the employer involved in the litigation appealed the 2015 decision to the D.C. Circuit. On December 28, 2018, the court finally issued a ruling, in which it dismissed the appeal and agreed with the NLRB's 2015 reasoning. Specifically, it found that the touchstone for determining employment status is the common law principle of control, regardless whether that control is "direct or indirect, exercised or reserved." If such control relates to the essential terms of employment, according to the court, it indicates employer status for purposes of the NLRA. Thus, according to the court, the NLRB's 2015 decision was consistent with the common law and enforceable, unless overturned by the NLRB. Notably, however, when turning to the facts of the case, the court determined that the NLRB failed to determine whether the indirect control exercised by the employer actually was indicative of an employment relationship.

With this opinion in place, the previous NLRB regime is somewhat vindicated in its implementation of the broader Browning-Ferris standard. Nevertheless, the current plans to revise the rule remain pending. In fact, writing in dissent, Judge A. Raymond Randolph of the D.C. Circuit questioned whether the court should have ruled on the case while the NLRB pursued its regulatory efforts and criticized his colleagues for "add[ing] to the uncertainty" the 2015 decision created.

The Road Ahead

Even with the decision in place, employers should continue to monitor the status of the NLRB's rulemaking. During this process, the NLRB will have the opportunity to review the public's comments on the initial proposals and potentially make changes before new rules go into effect. It will likely face opposition in the House of Representatives, where a Democratic majority may seek to keep Browning-Ferris from being scrapped, much like the previous majority attacked the 2015 ruling. Nevertheless, neither development is likely to derail the NLRB completely. Thus, regardless of the ruling, employers should anticipate changes more in line with pre-2015 NLRB precedent in the near future.

Copyright © by Ballard Spahr LLP

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Daniel Johns, Ballard Spahr Law Firm, Philadelphia, Labor and Employment Attorney
Partner

Daniel V. Johns is the Leader of Ballard Spahr's Higher Education Group and is a member of the firm's Labor and Employment Group. Mr. Johns represents and advises employers and management in a variety of labor and employment issues, including discrimination, harassment, and other civil rights litigation; interest and grievance arbitrations; at-will litigation; restrictive covenant/trade secret claims; benefits litigation; independent contractor classification issues; collective bargaining; union avoidance; and unfair labor practice litigation before the National Labor...

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Christopher Cognato, Ballard Spahr Law Firm, Philadelphia, Labor and Employment Litigation Attorney
Associate

Christopher T. Cognato advises public and private employers on a range of labor and employment issues and represents them in litigation and administrative proceedings. His experience includes cases brought under Title VII of the Civil Rights Act, the Employee Retirement Income Security Act (ERISA), the Americans with Disabilities Act (ADA), Family and Medical Leave Act (FMLA), Fair Labor Standards Act (FLSA), Pennsylvania Human Rights Act, and National Labor Relations Act. He frequently helps clients develop employment policies, including those related to hiring, firing, disciplinary practices, employee leave, and reasonable accommodations. Mr. Cognato has advised clients in connection with collective bargaining negotiations and has assisted in representations before the National Labor Relations Board (NLRB) and Pennsylvania Labor Relations Board. This includes defense of alleged unfair labor practice charges and participation in representation cases.

215-864-8612
Elliot I. Griffin, Ballard Spahr, Litigation lawyer
Associate

Elliot Imani Griffin is an associate in the Litigation Department who focuses her practice on labor and employment matters. During law school, Elliot interned with Exelon Corporation, a Fortune 100 energy company, where she researched recent National Labor Relations Board decisions to assess how they would impact Exelon's policies. She also wrote demand letters to address fake websites that were allegedly infringing upon the mark of Exelon and its subsidiaries, drafted motions, and assisted in the preparation for Pennsylvania Utility Commission hearings.

Elliot...

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