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Joint employer ruling on contract workers expands potential liabilities


A National Labor Relations Board ruling redefining what constitutes a “joint employer” creates considerable uncertainty for companies that could take years to resolve.

It remains to be seen the extent to which courts will defer to the NLRB's August ruling in Browning-Ferris Industries of California Inc., but several experts believe the issue will ultimately be decided by the U.S. Supreme Court.

Legal experts are also concerned that other federal agencies, including the Equal Employment Opportunity Commission and the Department of Labor, are in the process of developing similar standards for who are considered joint employers, in response to the “fissuring” of the traditional employer-employee relationship.

Rochelle Spandorf, a partner at Davis Wright Tremaine L.L.P. in Los Angeles, said federal agencies' interest in this issue reflects the general perception that how the workplace is organized has changed.

She said this was articulated in “The Fissured Workplace,” a 2014 book by David Weil, the Labor Department's wage-and-hour division administrator, in which he discussed how small businesses that sprang up to provide outsourced workers splintered traditional employer functions across multiple firms.

Meanwhile, legislation already pending in Congress — the Protecting Local Business Opportunity Act — could provide some relief. The administration change following next year's presidential election also could also have an effect.

Experts urge employers to examine their contracts with franchisees, subcontractors, staffing agencies and other independent contractors to be sure they do not run afoul of the NLRB.

In its 3-2 decision in Browning-Ferris, the NLRB overturned the standard in place since 1984 that firms must have “immediate and direct” control over a worker to be considered a joint employer. Instead, it held that a company need have only indirect control of a worker and not even exercise that control to be considered a joint employer.

“The potential clearly is to disrupt a lot of traditional business relationships,” said Marshall B. Babson, a former NLRB member and now counsel at Seyfarth Shaw L.L.P. in New York.

“Even though the NLRB did articulate a new standard in Browning-Ferris, they did not set forth a kind of bright line for employers to follow,” said Kelly Thoerig, Washington-based employment practices liability coverage leader at Marsh L.L.C.

Contracts between companies and contract workers “should be very clear on who has responsibility” for discipline, management, hiring and firing, said Adeola Adele, New York-based executive vice president and employment practices liability insurance product leader at Willis North America Inc., a unit of Willis Group Holdings P.L.C. Employers also should have separate training and badges for contract workers “that don't create expectations they are employed by the company.”

Observers note that in April 2015, the NLRB associate general counsel issued an opinion that Chicago-based Freshii Development L.L.C., a fast food restaurant franchisor, was not a joint employer with Chicago-based franchisee Nutritionality Inc.

Freshii “was careful in the way they laid out their relationship. There wasn't any control,” said Gregory H. Andrews, a shareholder with Jackson Lewis P.C. in Chicago.

“If you're a general contractor, you have to be have very strict written procedures of where your responsibility ends” and the subcontractor's begins, said Peter Taffae, managing director at Los Angeles-based Executive Perils Insurance Services.

One approach, said Michael J. Lotito, co-chair of Littler Mendelson P.C.'s Workplace Policy Institute in San Francisco, instead of hiring a third-party firm to bring in cafeteria workers, set up a couple of microwaves and let food trucks sit outside. “You have to be creative in minimizing the risk,” he said.

Insurance coverage “depends on what the allegations are,” said Ms. Adele. Although the National Labor Relations Act deals mainly with collective bargaining issues, a retaliation claim would generally be included under employment practices liability policies, she said. Other allegations may be covered under wage-and-hour policies, she said.

Ultimately, legal experts say, the issue may wind up before the Supreme Court.

“Historically, courts have required a greater level of control over an employee to be considered a joint employer,” said Jonathan T. Hyman, a partner at Meyers, Roman, Friedberg & Lewis in Cleveland. While he believes the courts will ultimately disagree with the NLRB's interpretation of the joint employer relationship, “you're years away from that.”

Experts say the 2014 McDonald's Corp. franchisee case, for instance, could take at least several years to resolve. The NLRB's general counsel determined that Oak Brook, Illinois-based McDonald's USA L.L.C. should be considered a joint employer with its franchisees.

“We'll need a Supreme Court resolution of this, ultimately,” said Charles I. Cohen, another former NLRB board member and now senior counsel at Morgan, Lewis & Bockius L.L.P. in Washington.