The workplace was overtaken by events last week when the US National Labor Relations Board adopted an broader definition of “joint employer” that it hadn’t been expected to finalize until next year.
The NLRB’s decision in the case of trash hauler Browning Ferris Industries of California effectively established that a business can be found to be an “employer” even if it has only the potential power to control individuals’ work indirectly. For the past 30 years, the control standard had been both immediate and direct, insulating franchisers such as McDonald’s and companies that subcontract or outsource from employment liability and helping to fuel the recent growth in non-traditional work arrangements.
The “new” standard—actually in effect before the Reagan era—means not just that BFI is an employer in the context of union-organizing efforts at a staffing agency it used, but that any franchisor or company using temporary or contract workers could be seen as having the obligations of an employer.
“This totally broadens the landscape from this point on,” said Kelly Thoerig, EPL coverage leader at Marsh, whose primary responsibility is manuscripting policy at the broker. She added that it was hard to know which companies wouldn’t be considered joint employers under the new definition if they used other companies to conduct their business.
The NLRB has already found that McDonald’s, by its use of tools, resources and technology, engaged in sufficient control over its franchisees’ operations—beyond protection of the brand—to make it a “putative joint employer,” sharing liability with its franchisees for more than 300 violations of the National Labor Relations Act since 2012. The NLRB is expected to make a final decision on the case in 2016.
The NLRB’s decision to expand joint-employer status in the case of BFI mirrors guidance issued by the Dept. of Labor in July, which broadened the definition of employee—sweeping many more workers, independent contractors among them, under the protection of labor laws.
“This latest designation is part of an overarching scheme to broaden the number of workers who are protected” by such laws in the US, Thoerig told Advisen.
In a report on joint employer status released before the NLRB decision, Marsh said “a decision to adopt a broader definition of ‘joint employer’ is consistent with the DOL’s Wage and Hour Division’s current efforts to address the ‘fissured’ workplace (shedding functions), which Administrator David Weil believes allows ‘top of the pyramid’ companies to delegate to the secondary market to provide lower wages, fewer benefits, and less safe workplace protections.”
This secondary market includes subcontracting, franchising, outsourcing, employee leasing, contingent and temporary workers, and independent contracting.
The new definition of who is an employer “could lead to increased claims against franchisers for discriminatory labor practices and wrongful labeling of their franchisees,” Marsh said, just as misclassification of independent contractors has led to a flood of charges from DOL.
Both franchisers and companies using the so-called secondary market could face exposure to an array of laws in addition to unfair labor practice charges under the NLRA, including discriminatory practices under Equal Employment Opportunity laws such as Title VII, Age Discrimination in Employment Act, the Americans with Disabilities Act, and wage and hour violations under the Fair Labor Standards Act.
“Whether the NLRB’s focus on the issue causes other administrative agencies like the DOL and the Equal Employment Opportunity Commission to take a closer look at the joint employer relationship also bears watching, as does the potential for enforcement coordination between federal agencies which could result in higher compliance costs,” Marsh said.
“Employers are going to challenge it,” said Adeola Adele, national EPL product leader at Willis, of the NLRB decision. “What we are now seeing is the tension between companies and federal agencies that are enforcing employment laws, which currently are pro-employees.”
“The NLRB decision means that companies now can’t avoid” the issue of potential liability for the employees of a third party, such as a franchisee or a subcontractor, she said. “You have to decide.”
With respect to EPLI coverage, it’s important for a company to coordinate the contract with a third party, such as a professional employment organization, over the definition of “employee” and “insured” entities under the policy, Adele told Advisen.
The company should at least have an indemnification agreement with the other company that says, for example, “BFI is not a joint employer and Leadpoint (its staffing agency) agrees to indemnify BFI for any act or conduct of Leadpoint’s employees,” Adele said. Or, have the other company include BFI as an insured under their EPL policy for wrongful acts committed by the contracted workers—whether the underwriters are willing to offer that coverage will have to be negotiated.
Adele also told Advisen that “there must be coordination between a company’s human resources department, in-house and outside employment counsel. HR is best positioned to inform counsel as to the role and responsibilities of contracted workers within the company so that counsel knows what advice to provide in addressing potential exposure.”
While it’s too soon to tell how courts will interpret the broader definition of joint employer, an increase of litigation around the issue of who qualifies as one is inevitable, Thoerig said, with “potential defendants being brought in who would not even have been on the plaintiffs radar” before.
EPL and wage and hour underwriters could become more rigorous in assessing how much control franchisors exercise over franchisees’ operations, Marsh said. And EPL and wage and hour insurance rates may rise if company losses increase in both frequency and severity related to the proposed joint employer stipulation.
“It’s no longer business as usual,” Adele said. “BFI is the game changer.”
