How can a business survive a shift in joint employer standard?

In business as in biology, the inexorable rule is 'adapt or die'

In July, InsideCounsel featured an article about proposed changes to the joint employer standard in the NLRB’s pending decision in Browning-Ferris Industries of California, Inc., et al. In Browning-Ferris, the NLRB general counsel advocated outright abandonment of the Laerco/TLI test and adoption of key changes to significantly broaden the reach of the joint employer doctrine. First, elimination of the distinction between direct, indirect, and potential control over working conditions: i.e., potential control is enough. Second, joint employer status should exist where “industrial realities” make the client company essential for meaningful bargaining: i.e., large client companies should be presumed to be joint employers because of their economic power.

On July 29, the NLRB Office of the General Counsel announced that, after investigating claims brought by employees against McDonald’s Corporation and its franchisees, if the parties cannot settle the claims, formal complaints will be filed listing McDonald’s Corporation as a joint employer. Currently, there are 43 pending cases where McDonald’s Corporation could be listed as a joint employer. This announcement is another salvo in the government’s all-out assault on the joint employer standard.

In the Browning-Ferris case, the EEOC filed an amicus brief concurring with the need for a much broader standard that sweeps more and more contractual relationships into the definition of joint employment. The illustrations in its brief are telling:

The EEOC’s joint employer definition is intentionally flexible. . . . As Board Member Liebman has observed, “workplace relationships are becoming more varied as domestic industries continue to seek flexibility and . . . the increasing contracting-out of work is blurring . . . distinctions between employer and client contractor.” Airborne Freight, 338 NLRB 597, at *4 (Member Liebman, concurring). A flexible definition of joint employers addresses this changing reality.

While the Department of Labor (DOL) did not file an amicus brief in Browning-Ferris, it too proposes expanding the definition of who is the responsible employer. David Weil, recently appointed to run DOL’s Wage and Hour Division, designed in The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It an enforcement strategy to focus on what he calls “fissured workplaces” — companies that fragment economic operations by transferring management and operations of certain units to outside entities via outsourcing, franchising, or sub-contracting.

Simply stated, each of the three key federal government prosecutors of employment law violations has openly declared an intent to expand the traditional definitions of “joint employer” to address the “fissured workplaces” of the 21st century. This shift in prosecutorial discretion now must be factored into business decision-making.

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So, how can a business survive this shift in joint employer standard? In business as in biology, the inexorable rule is “adapt or die.” Businesses should consider proactive steps to address the emerging changes in the law of “joint employment.” First, businesses should consider embracing employment in settings where outsourcing is no longer cost effective because the legal liability outweighs the cost savings of not having the workers as employees. Browning-Ferris is illustrative; when there is a permanent presence of workers on company property who perform central business functions, there may be more benefit in embracing them as company employees. For companies in this position, the transactional costs of constantly defending that paradigm alone may eliminate the cost savings of such outsourcing. Companies should therefore consider “insourcing” such jobs.

Second, when outsourcing is still (with full recognition of the shift in law and in the costs imposed by that shift) the best business plan, companies should develop protective layers to shield them from liability. The litigation over joint employer issues at Union Station in Washington D.C. is a showcase example: A complaint was filed on behalf of food court employees of name-brand restaurants alleging wage violations and seeking to hold all tiers of ownership liable as joint employers — the management company operating the food court, the real estate company subleasing food court stalls to restaurants, and the building owner. This is not a scenario to embrace employment, but rather to build strong defenses:

  • Indemnification provisions that immunize upstream business entities
  • Exhaustive due diligence to evaluate that leasees have both the sophistication to avoid such employment problems and the resources to make good on the indemnity promises
  • Requirements that leasees have employment practices liability insurance with the leasor, etc. named as additional insurers

What remains is the gray area: How does a business decide whether to embrace employment or continue outsourcing with additional protection? This is neither a pure business decision nor a pure legal decision. Rather, it requires segmenting based on the possibility of downstream legal liability, and weighing legal risks against business gains in each unique situation.

 

Jennifer Eldridge of DLA Piper assisted with the creation of this article.

Contributing Author

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Marilyn A. Pearson

Marilyn A. Pearson is a partner in the Chicago office of DLA Piper. Pearson advises and represents clients on a broad range of traditional labor...

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