The complicated world of joint employers

Author: Gordon M. Berger, Partner

Have you heard?

The National Labor Relations Board (NLRB) is proposing to revamp the standard by which two or more employers may be considered joint employers.
Back on September 7, 2022, the NLRB published a proposed rule (Rule) in the Federal Register. Per the Rule, it “would revise the standard for determining whether two employers, as defined in section 2(2) of the National Labor Relations Act (NLRA or Act), are joint employers of particular employees within the meaning of section 2(3) of the Act.”
Then, on July 27, 2023, the NLRB published an agenda for the Rule. Per that agenda, the public comment period closed on December 7, 2022 and the Rule was supposed to become final last month. However, the Rule has yet to be published.

Under the Rule, two or more employers would be considered joint employers of employees if the employers share or codetermine essential terms and conditions of employment. The NLRB would take into consideration direct evidence of control as well as evidence of reserved, or indirect, control over these terms and conditions when analyzing joint employer status. Essentially, the now-Democratic majority of the Board is seeking to return to the standard articulated set forth in the Board’s 2015 Browning-Ferris Industries decision.

In the Browning-Ferris Industries decision, the Board found that a recycling company was a joint employer of a staffing agency’s employees that were assigned to its plant. Per the decision, the Board would now take into account an employer’s “reserved” and “indirect” control over an employee’s essential terms and conditions of employment – along with any “direct” and “immediate” control. The challenge that this decision placed on employers is that they could be considered joint employers where they had a right to exercise control over an employee, but even where they did not exercise such control.

After the 2016 U.S. presidential election resulted in a Republican administration, the Board was determined to reverse Browning-Ferris. So, in 2017, the Board in Hy-Brand Industrial Contractors, Ltd., and Brandt Construction Co. overturned Browning-Ferris and reverted the joint employer standard to only where an employer actually exercised direct control over employment terms and conditions (i.e., having a right to exercise was no longer considered by the Board).

Then, in 2020 the Board issue a rule that created a joint employer relationship only if the employer possessed and exercised substantial direct and immediate control over the employees’ essential terms of employment – such as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction. This rule was then challenged by the employer in Browning-Ferris in the U.S. Circuit Court of Appeals for the District of Columbia. The Court held that the Board had the authority to adopt a joint employer standard that factored in reserved and indirect control.

In addition, due to ethical considerations involving one of the Board members who participated in the Hy-Brand decision, the Board rescinded the opinion, all of which left in limbo the Board’s attempt to roll back the Browning-Ferris decision. Then, the 2022 elections brought another change of party control (from Republican to Democratic with Joe Biden winning the election), swinging the Board back to a desire to re-implement the Browning-Ferris decision.

What does this mean for professional employer organizations (PEOs)? PEOs do not typically collectively bargain with a union that has a contract with one of its clients. If found to be a joint employer, a PEO could be required to have a “seat at the table” with the union and the client. However, it is not practical for a PEO to be required engage in collective bargaining because their clients come and go. What if a PEO client terminates and the PEO had been required to be a party to the collective bargaining agreement (CBA) with the union that expires well past the client termination date? At the time of the client termination, all of the client employees (also known as worksite employees) cease to have an employment relationship with the PEO. Without any ongoing employer-employee relationship with the worksite employees, why would a PEO need to be a party to a CBA?

In addition, a joint employer bears joint and several liability for any unfair labor practices committed by the other employer in the relationship, so the PEO could face exposure for any violations of the NLRA committed by their client. Again, this creates a bit of a conundrum because PEOs consider themselves to be “co-employers” and not joint employers. The distinction is based on the realities of the relationship (which are memorialized in the PEO client service agreement). In practice, PEOs only assume certain employer responsibilities (such as outsourcing of payroll, human resources and benefits), leaving certain employer responsibilities solely for the client (i.e., worksite employer), while a few become a joint responsibility. For example, PEOs do not control the day-to-day operations of the worksite employer and have no personnel present at the client’s worksite; therefore, only the client is in a position to properly know and report working conditions (i.e., OSHA responsibility), hours worked by worksite employees and to exercise day-to-day direction and control.

Based on the realities of the relationship, the PEO should not be considered a joint employer since it lacks sufficient control over key terms and conditions of employment. But, if the Board implements the Rule, PEOs will face some challenges with respect to joint employer status. For one, in order to be an employer, a PEO has to provide certain employer functions, but in most cases, the PEO does not serve as a decision maker for setting rates of pay, over working conditions, job scheduling, etc. However, either by statute or contract (or both), a PEO reserves the right of direction and control over worksite employees, but in most cases it does not exercise such a right. But, under the Rule, is the PEO a joint employer because it may have the right to exercise control over the worksite employees even though it does not exercise such control?

We’ll see…

To learn more about this legal topic and how your PEO business can operate in total compliance, contact Gordon Berger directly or visit the FisherBroyles website here.