Blog: The California Workplace Advisor

On December 14, 2017, the National Labor Relations Board (the “NLRB” or “Board”) decided  Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. (“Hy-Brand”), reversing its 2015 decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery (“Browning-Ferris”) and re-establishing the pre-Browning-Ferris standard for determining joint employer status.  As detailed in our blog post here, the Browning-Ferris decision overturned three decades of Board precedent limiting joint employer status to entities that actually exercised direct control over the terms and conditions of employment.  Under the Browning-Ferris standard, an entity may be a joint employer if it has the right to “share or codetermine” the terms and conditions of employment, even if it never exercised that right and even if the reserved control is indirect or “limited and routine.”

In Hy-Brand, the Board analyzed whether two construction companies were joint employers of seven discharged employees, five of whom were terminated by Hy-Brand Industrial Contractors, Inc. (“Hy-Brand”) and two of whom were terminated by Brandt Construction Co. (“Brandt”).  The employees were terminated after engaging work stoppages that the Board determined were protected concerted activity.  Before deciding whether Hy-Brand and Brandt were joint employers, however, the Board analyzed and rejected the Browning-Ferris standard.

The Board identified five “major problems” with the joint employer standard adopted in Browning-Ferris.  According to Hy-Brand, the Browning-Ferris standard exceeded the Board’s statutory authority because, instead of interpreting and applying the common law of agency, the standard reflected an “economic realities” theory and an attempt to serve a “statutory purpose;” adoption of the standard was motivated by a desire to return to a simpler bargaining environment that never actually existed; the standard exceeded the bounds of deference afforded to the Board by the courts; the standard was “ vague and ill-defined”; and adoption of the standard sought to redress imbalances in bargaining power which the National Labor Relations Act (“NLRA”) was not intended to address.  The Hy-Brand decision described the Browning-Ferris decision as “misleadingly depict[ing] the limits of common law” and accused it of having “distorted the common law agency test.”

After rejecting the Browning-Ferris standard, the Board re-established the prior standard that “a finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine.’”  Applying this standard, the Board determined that Hy-Brand and Brandt were joint employers because they shared a Corporate Secretary, the shared Corporate Secretary was directly involved in the terminations at issue, the Corporate Secretary identified himself as a Brandt official in the termination letters sent to the Hy-Brand employees, and the two companies maintained shared employment policies and practices, all of which were overseen by the shared Corporate Secretary.

The two dissenters were equally critical of the majority’s decision.  They argued that deciding whether Hy-Brand and Brandt Construction were joint employers was unnecessary to resolving the dispute, that overturning Browning-Ferris did not affect the outcome of the dispute in Hy-Brand, that neither party asked the Board to reconsider Browning-Ferris, that the majority failed to give notice that it was considering a change in the law and failed to provide interested parties an opportunity to present briefs on the issue, and that the decision was untimely, given that the D.C. Circuit was currently considering an appeal in Browning-Ferris.

The decision represents another milestone in the Trump administration’s efforts to roll back labor policies adopted during the Obama administration.  In June of this year, as detailed in this blog here, the Department of Labor withdrew joint employer and independent contractor guidance issued in 2015 and 2016 (that guidance is available here and here).  That guidance generally favored employees, expanding joint employer status and challenging the independent contractor status of workers in the so-called “gig economy.”

Takeaways

The return to the pre-Browning Ferris standard is a welcome development for employers, to be sure.  The difference between actual control and potential control is a bright line that employers can strategically work with, and the NLRB’s about-face largely quiets the consternation of the past two years that a company could, for example, be found to be the joint employer of an independent contractor’s employees through a “potential control” theory (referred to by the Department of Labor during the Obama Administration as “vertical” joint employment).  Part of the fear was that a joint employer finding, on the basis of potential control, could in turn lead to companies being forced to collectively bargain with the employees of its independent contractors, and thereby immensely expand an enterprise’s potential liabilities.   The same concern of broadened liability existed for “vertical” joint employment between franchisors and the employees of its franchisees.

So the apparent death of such a “vertical” joint employment model will not be mourned.  That said, employers still need to be cognizant of the effects of potential shared control of more than one enterprise (the pre-existing standard of “horizontal” joint employment): where an employer shares facilities, key employees, has common management, or any of the other shared attributes identified in the pre-Browning Ferris standard, the likelihood of finding a joint employer relationship increases, and employers should consider consulting with their counsel to ensure that there is no material, shared function between such enterprises.  (And of course, there is still a pending appeal of the NLRB’s Browning-Ferris decision in the Court of Appeals for the District of Columbia, and that Court could end up affirming the NLRB’s former “vertical” joint employment model—which the NLRB has now abandoned.  But the currently constituted NLRB would likely go its own way and ignore any Circuit Court decision, on the NLRB’s long-stated logic that that it is only bound to adhere to the decisions of the United States Supreme Court, not that of Circuit Courts of Appeal.)

Stay tuned.  Looking ahead, the NLRB will continue to be an important forum as a shift to employer-friendly interpretations of the NLRA likely continues.

Ian Forgie is an associate in Hirschfeld Kraemer LLP’s San Francisco office.