61: Joint Employer Definition Expanded

Who is a joint-employer?
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The NLRB has paved the way for other federal agencies to apply this joint-employer standard to the laws they regulate and enforce.

Welcome to episode 61. Today, you’ll learn how the National Labor Relations Board (the “NLRB”) has expanded their interpretation of the pre-existing joint-employer definition to hold both temporary staffing firms and their clients, responsible for compliance with the National Labor Relations Act of 1947; and, how the Department of Labor (the “DOL”) is leveraging that new interpretation and applying it to the Fair Labor Standards Act of 1938.

If you are a temporary staffing company or if you use, or plan to use, temporary employees, then you’ll definitely want to listen to this episode.

The NLRB expands the scope of the law:

This story begins on Tuesday, August 27, 2015 when the NLRB ruled on the hotly debated question of whether or not to keep the current standard for assessing joint employer status, or revise it in light of what they call “the current economic landscape.”

The NLRB administers the laws created by the National Labor Relations Act which requires employers to acknowledge and negotiate with employee unions. Or, as the NLRB says it: to encourage collective bargaining, and to curtail certain private sector labor and management practices, which can harm the general welfare of workers, businesses and the U.S. economy

What is a joint employer? Well, it’s just as you might suspect. It’s where two or more employers are mutually responsible for labor law compliance of the same employee.

Before the recent ruling, that has now forever changed the landscape, to be an employer subject to National Labor Relations Act and the Board’s regulations, you had to have the authority to control the terms and conditions of employment and you had to actually exercise that authority.

But that changed due to the NLRB decision in the case of Browning-Ferris Industries of California, Inc., and LeadPoint Business Services. In the 3 to 2 ruling, which took 50 pages to explain, the NLRB says that it will no longer require you to possess and exercise that authority. Instead, control that’s exercised indirectly, such as through an intermediary, say a temporary staffing firm, is enough to establish joint-employer status.

So what is the new rule?

The NLRB’s decision did not clarify the extent of control that creates a joint-employer relationship. Of course not, that would be too much to ask. In fact, the two dissenting board members said that “the number of contractual relationships now potentially encompassed within the majority’s new standard appears to be virtually unlimited.” To help illustrate their claim they conveniently provided some examples:

  1. Insurance companies that require employers to take certain actions with employees in order to comply with policy requirements for safety, security, health, etc.;
  2. Franchisors;
  3. Banks or other lenders whose financing terms may require certain performance measurements;
  4. Any company that negotiates specific quality or product requirements;
  5. Any company that grants access to its facilities for a contractor to perform services there, and then continuously regulates the contractor’s access to the property for the duration of the contract;
  6. Any company that is concerned about the quality of the contracted services; and
  7. Consumers or small businesses who dictate times, manner, and some methods of performance of contractors.

So what’s the big deal?

The effects of this ruling will be felt far and wide as undoubtedly it will permeate government agencies across the board like a dense fog engulfs the coastline. Not long after the ruling, the DOL’s Wage and Hour Division adopted the new definition to fill the crevasses created by the fissured workplace. We talked about the fissured workplace and what that means, in the last episode, episode 60.

At the end of the day, if the DOL has it their way, every individual who performs work for a business will be counted as an employee of that business for, purposes of federal labor laws, regardless of who they actually work for. Both companies will be responsible for compliance.

This ruling has paved the way for other federal agencies to apply this joint-employer standard to the laws they regulate and enforce. And as we already saw in the last episode, the DOL is ready to begin its attack on temporary staffing firms and the businesses who use their services when it comes to FLSA compliance.

But it won’t stop at just temporary staffing arrangements, no, the DOL is chomping at the bit to extend this logic to franchisors, subcontractors and every other form of labor outsourcing.

Here is a quote from Dr. David Weil, the Administrator of the DOL’s Wage and Hour Division:

“As the workplace continues to fissure, and as employment relationships continue to become more tenuous and murky, we will continue to identify where joint employment applies and to hold all employers responsible,”

In his Administrators Interpretation, a sort of opinion letter on joint-employment dated January 20, 2016, Dr. Weil says that:

“Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA.  Where joint employment exists, one employer may also be larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance. Thus, WHD may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations.

In other words, each joint employer is individually responsible, for example, for the entire amount of wages due. If one employer cannot pay the wages because of bankruptcy or other reasons, then the other employer must pay the entire amount of wages; the law does not assign a proportional amount to each employer.”

Now what?

What can you do to to protect yourself from being determined a joint-employer by the NLRB and the DOL?

Look at your contracts – all of them which involve an employee of the other party doing work for you. Look to see if you have any rights to exercise control over how the work is done, the wages that are paid, the conditions of employment, etc. Evaluate the arrangement in each of the following categories for the degree to which you contractually and physically:

  1. Direct, control, and supervise the work performed.
  2. Control the employment conditions.
  3. The permanency and duration of the arrangement.
  4. The repetitiveness of the work and the level of skill and training involved.
  5. Is the employee’s work an integral part of your business?
  6. Is the work performed on your premises that you either own or control?
  7. The nature and extent of any administrative functions you perform on behalf of the employee. Do you gather timecards, report hours and earnings,
  8. process payroll, approve time off? Do you provide insurance tools, materials, training?

Make sure that the company providing the labor knows what they are doing and are compliant. Otherwise, you might be the one paying for it.

Your vendor due diligence just got a lot more complicated.

About the author, Thomas

I have 20 of years insurance industry experience in C-level management, focusing on all aspects of workers compensation, risk management, loss control, employee benefits, HR, payroll and professional employer organization (“PEO”) operations. Currently, I am the owner and CEO of Humanly HR, and founder and host of SmallBiz Brainiac; a podcast providing employer intelligence to small business owners.

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