In February 2020, the National Labor Relations Board (NLRB) under President Trump issued its Joint-Employer Final Rule, which reinstated the traditional, decades-old joint-employer standard under the National Labor Relations Act. The Final Rule establishes that an entity can only be a joint-employer if it actually exercises control over the essential terms and conditions of another employer’s employees.
The joint-employer standard is used to determine when two or more entities are jointly responsible for the terms and conditions of employment over the same group of employees. These terms and conditions include, but are not limited to, having the ability to hire, fire, discipline, supervise, or direct employees. Joint-employers are responsible for bargaining with any union representing the joint-employees and are mutually liable for any NLRA violations either entity commits against those employees. Joint-employer status, therefore, results in significant liabilities and responsibilities under the law.
Under the traditional standard, entities can only be joint-employers if they exercised direct and immediate control over the essential terms and conditions of employment. This standard provides clarity for businesses and protected them from unnecessary involvement in labor negotiations and disputes involving workplaces in which they did not have control. This is especially necessary in today’s world, where large and small businesses alike have contractual relationships with dozens, hundreds, or even thousands of franchisees, vendors, and contractors.
The US Department of Labor (DOL) also issued a Joint Employer Final Rule restoring the traditional standard under other federal labor laws. CDW submitted comments on the proposal in June 2019. DOL’s Final Rule was challenged by several state Attorneys General in federal court. In September, the court issued its decision, blocking implementation of DOL’s rule. The court determined that DOL’s final rule had two “major flaws:” that the Department only considered the definition of “employer” when drafting its Final Rule and used different tests to determine a “primary” employer and a “joint” employer. DOL has appealed the ruling.
Both the NLRB and DOL issued their rulemakings in response to a years-long attack on the joint-employer standard by Democrats in Congress and on the NLRB. In the 116th Congress, House Democrats passed the Protecting the Right to Organize (PRO) Act, H.R. 2474 (Senate companion, S. 1306), which would codify into law a drastically expanded joint-employer standard. Under the PRO Act the standard would include situations where companies shared only indirect or even just unexercised potential control over the terms and conditions of employment.
This standard was originally conceived by the Obama-era NLRB in its 2015 Browning-Ferris Industries (BFI) decision. Under the BFI standard nearly every contractual relationship could potentially trigger joint-employer status, from the franchise model to those between contractors and subcontractors and suppliers and vendors, needlessly exposing vastly more businesses to unwarranted joint-employer liability.
The franchise model, for example, which is rooted in the traditional standard, allowed individuals to open their own small business with the support of the larger, more experienced franchisor. The franchisor provided the business model, well-known logo, and some assurances and support, but the franchisee was responsible for making the individual business succeed and was liable for its business practices. The BFI standard, however, could potentially impose significant liability on the franchisor, forcing them to protect themselves via ending and/or limiting their support to their franchisees or exerting increased authority over them, essentially converting those small business owners into employees.
Additionally, the traditional standard allowed larger businesses to rely on goods and services provided by local businesses without facing uncertainty around joint-employer liability. Under the BFI and PRO Act standard, however, larger companies would be more likely to subsume local businesses rather than work with individually owned enterprises, stifling entrepreneurship, business innovation, and flexibility. The standard also hampers businesses’ efforts to encourage “corporate responsibility” among franchisees, contractors, and vendors to the detriment of workers, consumers, and their communities.
To make matters worse, neither the PRO Act nor the BFI decision defined key terms or provided guidance as to how to implement the new standard, resulting in massive uncertainty for the business community. This lack of clarity resulted in the US Court of Appeals for the DC Circuit returning the BFI case to the Board.
CDW will continue to fight against Democrats’ unwarranted attacks on small and local businesses and continue to pursue all available avenues to reinstate the traditional standard. Restoring the traditional joint-employer standard will support the independence of local businesses and ensure entrepreneurs can still achieve the American Dream of owning their own small business.
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