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Labor Board Flexes Its Muscles and Changes Joint-Employer Standard

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This past summer, the National Labor Relations Board (NLRB) made a major change in a decades-old standard used to decide whether a "joint-employer" situation exists on the job. The new standard will no longer require that a joint employer both possess the authority to control employees' terms and conditions of employment and also exercise that authority.

The NLRB also decided that it will no longer, "require that ... an employer's control ... be exercised directly and immediately. Control exercised indirectly- such as through an "intermediary" [a third party agency who organizes agreements between two companies engaged in a business relationship] now may establish joint-employer status." The strict requirement of "direct and immediate" control, which required evidence of the parent company creating hours, wages, and job responsibilities, no longer controls whether a joint-employer relationship exists.

The NLRB is a federal agency charged with preventing unfair labor practices against union workers and enabling any group of workers to organize. One type of employment relationship that has been closely scrutinized by the Agency is that of the joint-employer, which exists when two separate businesses engage in a relationship and exert control over the same employees.

For example, a hotel might contract with a private cleaning company to clean its rooms. Both the hotel and the cleaning company might have some influence over the employee's wages, hours, and working terms. According to the NLRB, the hotel would now be responsible for any labor violations by the cleaning company. Franchisors may also fall under the joint-employer status. Large fast food franchises like McDonalds, recruit managers to act as franchisees. Those managers then hire employees, who are accountable to both them and to McDonalds.

Employees belonging to these large-scale franchises should be happy about the new standard, since the "main business" (the hotel or McDonalds) will have to make sure that the hiring and work practices of cleaning company or the franchisee don't infringe on union organizing efforts. Before, the "main business" could turn a blind eye to the individual practices of their contractors or franchisees. Now, they'll be bound by across-the-board business standards.

Not everyone thinks the change is a good thing. Members of some Congressional committees say that the decision marks a dramatic shift in the purpose of the NLRB from being neutral between labor and management to becoming an open advocate for organized workers.

But until the new standard is overturned, by Congress or a Court, businesses should carefully review the language in their contracts with other companies that impact on employees and adjust their business practices.

Any business that wants to remain in a joint-employer relationship must be careful to closely regulate the employees now under their responsibility, and create business practice standards that don't infringe upon employee organizing rights. Those not wanting to take on the additional liability the NLRB's decision brings should take a step back in their relationships with other companies, including letting the franchisee or contractor be the only one to have meaningful control over the hours, wages, and specific work responsibilities of the employees. Loree Varella, Rutgers School of Law Newark candidate for a JD degree in May 2016 collaborated on this blog. She is Associate Editor of the Rutgers Computer and Technology Law Journal and Managing Research Editor of that publication.

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