Sep 13, 2016 - 11:00am

How the Obama Administration’s Joint Employer Standard Threatens Small Business

Senior Vice President, Employment Policy Division

The past seven years have witnessed a deluge of policy mandates and enforcement directives from the Obama administration, and one of the worst offenders has been the National Labor Relations Board. When people think of this agency, it tends to be purely in the context of union issues. But the fact is, the NLRB has claimed jurisdiction over most businesses in the country. Take, for example, the agency's new "joint employer" standard, which is being challenged right now in the U.S. Court of Appeals for the D.C. Circuit by members of the business community including the U.S. Chamber of Commerce.

Joint employer simply means that two separate businesses, such as a temp agency and a company that obtains workers from the agency, share legal responsibility for the same employee. For more than thirty years, the NLRB had used a fairly simple, bright line test for determining joint employer status. This was based on "direct and immediate" control. Under this standard, if two separate businesses had actual authority over terms and conditions of employment, such as pay, hiring, firing, discipline, and day-to-day supervision, they would be considered joint employers. If they didn't, they weren't.

This clear standard helped facilitate the expansion of business models like franchising and subcontracting — models that have led to greater efficiency, flexibility and ultimately growth. In fact, more than 9 million people now work in the franchise industry alone.

In 2015, the NLRB threw out the clear standard for determining what a joint employer is.

But in 2015, the NLRB threw out that clarity in a case regarding Browning-Ferris Industries. In BFI, the NLRB replaced the "direct and immediate" control standard with a new test based on "indirect" control and the "potential" to control. What this means in the real world is a much broader, and considerably more vague, standard will be used to determine joint employer liability.

The franchising industry is an obvious target of this new standard, but subcontracting arrangements are also in the crosshairs. Take, for example, janitorial services. A building owner who subcontracts out for this work doesn't hire or fire the janitors, doesn't discipline them, and doesn't write their paycheck. Most likely, he or she merely sets standards for the level of cleanliness expected, and probably requests that the janitors operate on a specific schedule (such as cleaning the building outside of normal work hours). Under the new standard, however, the NLRB could claim that the building owner exercises "indirect" control over the janitors and assert joint employer status.

The "potential to control" factor could also be used to find joint employer status. For example, the building owner probably has a contract clause giving it the ultimate authority over who is allowed on his or her property. This clause could be used, for instance, to exclude janitors who were drunk, selling drugs, or carrying weapons. This type of protection against liability is widely (and appropriately) used in many contracts. If such language can be used to find joint employment status, the reach of the NLRB's new standard is almost limitless.

Unfortunately, the NLRB isn't the only agency that is attempting to disrupt the normal definition of joint employer. The federal Wage and Hour Administration and OSHA are also attempting to expand joint employer findings under the statutes they enforce. State and local governments have jumped on the bandwagon as well, typically through minimum wage ordinances that tie local franchise business owners together with brand name companies — magically making small businesses "large" employers for purposes of enforcement. The U.S. Chamber of Commerce and the International Franchise Association highlighted this trend in a research paper.

The consequences of a joint employer finding can be severe. For example, a larger employer could be held responsible for unfair labor practice charges filed against a franchisee or subcontractor. A business might also be dragged into collective bargaining negotiations with a unionized joint employer. Secondary picketing and boycotts, illegal when conducted against neutral employers, would be fair game with joint employers. Finally, small businesses that are lumped together with larger ones could face new liabilities under Obamacare and other laws with small business exemptions. Businesses of all sizes are scrambling to figure out how to continue operating in this new environment.

Congress can, and must, take action to return common sense to this aspect of labor law, either through an appropriations rider or stand-alone legislation — an idea that is attracting bipartisan support. Left unchecked, the new liabilities created by the NLRB will be to the detriment of workers, employers and the economy.

This piece originally appeared in The Washington Examiner.

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About the Author

Glenn Spencer Headshot
Senior Vice President, Employment Policy Division

Glenn Spencer is senior vice president of the Employment Policy division at the U.S. Chamber of Commerce.