Determination of Joint Employer Status Under the NLRA
By Shreya Kalidindi, for Legal Corner LLP. Shreya is a fourth-year student of NALSAR University of Law and will be graduating in 2022.
(The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you need assistance with incorporation of your entity in the US so as to get legal advice that is specific to your business needs).
What is Joint Employment?
Joint Employment is a scenario where there are two entities acting as a person’s employer. These entities are collectively known as Joint Employers, and usually comprise of a direct employer who has a say in all matters relating to the control and supervision of the employee, and one or more secondary employers who have the power to exercise some – if not the same – degree of control and supervision.
However, it is important to note that there is more than one way to legally define Joint Employment. This depends on the purpose for which the Joint Employment relationship is sought to be determined (i.e., the claim being made).
Regardless, if two or employers are deemed to be joint under a legally recognized standard, then these employers can be potentially held jointly liable for unfair labor practices committed only by one of them. This could include, for instance, an employee being able to sue a staffing agency as well as the corporation they work for in a claim related to unpaid wages.
Change in the Standard of Determination
While there are different standards to determine Joint Employership, it is pertinent to discuss the one utilized by the National Labor Relations Board (NLRB) for businesses and employees under the National Labor Relations Act (NLRA), seeing as it has been recently altered.
Purported as the ‘Final Rule on the Joint Employer Standard’, the now altered standard seeks to narrow down the domain of the Joint Employer definition from that previously applicable, and has been in effect since April 27th, 2020.
Departure from the Browning-Ferris Standard
Prior to the Final Rule, the standard to be followed was laid down in Browning-Ferris Industries of California, Inc., a 2015 decision. Here, the NLRB built upon the previous standard and expanded it to include companies which had a degree of indirect control or potential to exercise the same, regardless of whether it was actually utilized or not.
Owing to the expansive ambit of the standard afforded by the NLRB, it became possible to hold more companies jointly and severally liable for claims under the NLRA as Joint Employers. While this was hailed by some for being a welcome change owing to the fact that it now allowed for entities such as franchisors to be held liable as Joint Employers for concerns relating to wages and working hours (for instance), it was criticized by others for bringing about several detrimental effects due to its scope being too wide.
Efforts were made by the NLRB to return to the pre-Browning standard through the courts, but in vain. Hence, the focus was shifted towards rulemaking and the “greater precision, clarity and detail” that it allows for.
Final Standard of Determination
According to the NLRB, in order to be a Joint Employer under the Final Rule, a business must possess and exercise substantial, direct and immediate control over one or more of the essential terms and conditions of employment of another employer’s employees. These terms have been expounded upon under the rule itself.
Possess and Exercise – Unlike the Browning-Ferris standard, it must now be demonstrated that the employer who has the power to exert control over the employee has actually done so in the situation at hand. Mere possession of power will not suffice.
Essential Terms and Conditions – The Final Rule earmarks certain aspects of employment as the essential terms and conditions, and puts forth that only the control exerted over one or more of these aspects shall be taken into account to determine Joint Employership. Other factors apart from these cannot be used to prove a Joint Employer relationship.
The 8 essentials are: wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.
Substantial, Direct and Immediate Control – The degree of control is defined differently depending on which of the essential terms and conditions it is associated with.
For instance, in order to satisfy the requirements for disciplinary control, the potential Joint Employer must make an actual decision to suspend or disciple by other means; a mere misconduct report provided to the other employer will not suffice.
Another example is one relating to the hours of work. For the control to be seen as substantial, direct and immediate, the Joint Employer must set the work schedules, determine the standards for overtime work, etc. It is not enough if they merely establish operating hours or calendars.
However, regardless of which essential term or condition(s) is in question, it is important to show consistency. Control, as envisioned in the rule, must be exercised regularly, and not sporadically or in passing. The burden of proving that such conditions exist is placed on those who seek to prove that Joint Employership exists.
Changes to the Definition in Other Domains
The Final Rule is limited only to liability determination for the purposes of the NLRB. Under Federal Law (the Fair Labor Standards Act, or FLSA), it is the United States Department of Labor (DOL) which is responsible for defining Joint Employership. While the DOL also sought to amend its definition and make it more attune to that of the NLRB, this move has been struck down by the judiciary.
The Equal Employment Opportunity Commission (EEOC) is expected to make similar changes as well, although this move is expected to be significantly delayed. If amended, the new standard of Joint Employment will govern federal discrimination claims.
Joint Employers and ICE Audits
If Immigration and Customs Enforcement (ICE) conducts an audit of the employer, they tend to request the I-9 (employment eligibility verification) forms of all the individuals on the employer’s payroll, regardless of whether they are classified as employees or independent contractors. Therefore, in cases of Joint Employment, abundant caution must be exercised to ensure that I-9 forms are filled only when needed. In cases where an independent contractor is not subjected to the full extent of the aforementioned standards of determination, they are not required to complete an I-9 form. This could include situations where the independent contractors make their services available to the public beyond the employer, and where the independent contractor is liable only for the results of their labor and supplies their own equipment. It is important to make such a distinction, seeing as a completed I-9 form strongly indicates the presence of an employee status, and thus would have a bearing on whether someone is considered to be in a Joint Employment relationship.
If you have any questions regarding the incorporation process, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.