In a move that has been anticipated for months, the National Labor Relations Board recently published a proposed rule that would fundamentally alter the definition of joint employment, making it more difficult for businesses to be held legally responsible for alleged labor and employment law violations by staffing companies, franchisees, and other related organizations. The rule, if eventually adopted, would also limit the ability of employees from affiliated companies to join together to form unions. 

This issue has been closely watched by the restaurant industry in particular in recent years, with an eye toward potential ramifications for the franchisor-franchisee relationship.

Under the proposed rule, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or co-determine the employees’ essential terms and conditions of employment. As the Board states, a putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ conditions of employment in a manner that is not limited.

While this is just the first step in what may be a long process, it is a welcome development for the restaurant industry.

Brief History: Standard Has Flip-Flopped In Last Several Years

The joint employment dilemma has taken many twists and turns in the recent past. For over 30 years, the National Labor Relations Board (NLRB) had held that two companies would only be considered “joint employers”—equally responsible for certain labor and employment matters—if they shared or codetermined those matters governing the essential terms and conditions of employment, and actually exercised the right to control.

However, in 2015, the Board renounced this joint-employer test in the controversial Browning-Ferris decision, eliminating the requirement that the employer actually exercise control. Instead, the NLRB decided that businesses need only retain the contractual right to control to be considered a joint employer—even if it has never exercised it. Further, the Board held that indirect control (e.g., control through an intermediary) would be sufficient to find joint employment.

The standard briefly reverted to its previous form in December 2017, when the Board effectively overturned Browning-Ferris in the Hy-Brand Industrial Contractors, Ltd. case. However, just a few months later, the Board was forced to vacate that decision due to allegations that one of the Board members involved in the decision had an unacceptable conflict of interest. So as of today, employers are still subject to the Browning-Ferris standard.

NLRB Proposes Rule Reversal

If the proposed rule is adopted in its current form, an employer would only be considered a joint employer if it shared or codetermined the “essential terms and conditions” of employment over the workers of another business, and there must exist evidence of direct and immediate control before a joint employer relationship can be found. This includes pivotal human resource activities such as day-to-day supervision, hiring, discipline, and firing. The employer would need to not only possess but also actually exercise “substantial direct and immediate control” over the essential terms and conditions of employment in a way that is not considered “limited and routine.” As the Board explains, if the proposed rule is adopted, it will be insufficient to establish joint employer status “where the degree of a putative joint employer’s control is too limited in scope (perhaps affecting a single essential working condition and/or exercised rarely during the putative joint employer’s relationship with the undisputed employer).” By including such requirements, the proposal would almost certainly mean that fewer businesses would be found to be a joint employer by a court or agency.

That would be welcome news for the restaurant industry, which has seen a sharp uptick in organizing activity and litigation from labor groups seeking to hold restaurant franchisors jointly responsible for activities of their franchisees. 

When Will This Meal Be Ready to Eat?

Now that the Notice of Proposed Rulemaking has been officially published, the Board will begin a formal process that includes receiving and considering comments from interested parties and members of the public before any new rule can be officially established. The due date for comments is 60 days from the proposal’s publication date: November 13, 2018.

After the comment period closes, it could take months for the rule to be finalized, as the Board will need to hold public hearings and will need to sufficiently address the substantive comments received (many of which will no doubt come from unions and other worker advocates). Moreover, critics of the rule could seek to block or delay it through the court system, especially if the notice-and-comment period is seen as lacking in substance. Still, this may be an easier fix than awaiting congressional action.

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